Hi Mark,
Handbrake won't do a very nice job of transcoding a HD movie to work on the Linktheater.
What you need is Xvid4PSP. Just google it. You will also need the free Klite codec pack for it to work, you can get them both from the same site,
On your PC load the HD .MKV into XvidPSP then click Media Info. In the video section you will see format profile and somthing like High@L4.1
This will play fine on my PCH-110 but although the specs of the Linktheater say it can play AVC4.1, it doesn't.
What you will need to to is retranscode the movie to a lower specification AVC profile (AVC 3.1).
Next to video encoding is a little E symbol, click on this and select AVC 3.1.
Select the sound track and container format .MKV and add it to the encode queue.
Now you should have a High Def file which plays on the Buffalo.