Whats the best file format to play hd stuff from a usb stick thingy?

I.e if i get the file as a mkv, can i just convert and play from the stick? If so, using mkv2vob and convert to mpeg?

Also, is it possible to play avi files direct from memory stick, i'm getting the arse with converting and burning to disk first!

Of course, these are all legal downloads.

Neil