Choppy video in both files and nitotv, audio works fine

I just bought and installed ATV Flash on my first gen apple tv.  When I go to play a high definition .mkv file, the audio plays flawlessly… but the picture skips around really bad.  It will stick to an image, and maybe play for 1-3 seconds.  This is followed by it stopping again and repeating.  What are some settings I can change to get the playback to be more smooth?  I have an external drive hooked up with all my movies stored on it.

I’ve never gotten mkv files to play on the Apple TV. I don’t think the processor is fast enough to handle it.