Mkv is fine. I was wondering if you are trying to play m2ts which would probably cause the pi to choke. Do you know what bitrate the video has? Does this happen to one video or all videos on the flash drive? Have you tried watching videos over the network from a nas? I'm wondering if you have a bad flash drive or if the videos are too much for the pi to handle. Have you changed any of the audio or video settings of xbmc? I know this may be a pain but if you can give us as much detail possible it can help us determine the issue.