There would be limitations to consider even in that most simple of a method. The Apple TV does have an upper limit on video bitrate (~25Mb/s) that some Blurays would surpass. Also it only supports 5.1 Dolby Digital (AC3) albeit at 640Kb/s which is higher then DVD and is considered bluray quality. So for movies that have DTS only, they would have to be transcoded to AC-3 regardless.
Transcoding audio can be done quickly, easily, seamlessly and simply in handbrake by dropping your video compression down to minimal and then exporting the HQ sound. The video in an MKV container is just MPEG anyways so that pops right out and then you just transpose back in the audio file. Voila, about 15 minutes extra work, and just the same if you want to add additional languages, etc...
5.1 is a non issue. Unless you've got a home theatre larger than the size of most peoples floor space e.g. a real home cinema with like 100m2 of floor space, you won't need more than 5.1 and you won't be able to hear the difference anyways.
You can take me on that in a double blind test if you so wish. Anything more than 5.1 in your average house hold is just a gimmick. A good 5.1 setup will knock the socks off of an overspread cheap 7.1 speaker system in the same room every time. In many cases even a couple of decent floor standers in 2.1 will be enough. That's simply a case of quality over quantity every single time.
Spend your money on better speakers every time and your ears will thank you with it. I really don't care either
![Wink ;) ;)](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)
Unless you've got a real stadium home theater 7.1 is a gimmick. In a normal sized room it will never sound right and you will be able to spend more where it counts on higher quality speakers with 2 less channels anyway.
If you're even considering talking about home theater in a box type setups your opinion is null and void by default. Leave the 9.1 and whatever else for the actual cinema experience at a brick and mortar cinema, that's what your ticket and over priced candy pays for
![Wink ;) ;)](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)