In reply to Indy:
I use a separate (non apple) video player app to watch films etc. iTunes doesn't read all the formats but an app like AVPlayerHD reads most (certainly .mkv).
I transfer the files across on my PC within iTunes although there is a wifi option inside the app. If you go into the apps section of the device (in iTunes) and scroll down, there will probably be a couple of apps listed that you can add/remove files to/from. AVPlayerHD works like this. You then just highlight the app, click add a file and browse to wherever your videos are stored.
I prefer this to iTunes as it I'm not restricted by file format. I also don't use iTunes to buy my films very often.
Hope that helps.
Chris