mkvtoolnix is a set of cross-platform command line tools (mkvmerge, mkvextract, and mkvinfo) for extracting audio, video and subtitle tracks from Matroska Video (.mkv) files. After extracting these tracks you can recombine them into an AVI container with subtitles embedded using a tool such as ffmpegX (a visual interface to mencoder available for OS X only) or mencoder (Linux).
First, use mkvmerge to list the MKV file's contents:
mkvmerge -i MovieFile.mkv
You'll see a listing similar to this:
File 'MovieFile.mkv': container: Matroska Track ID 1: subtitles (S_TEXT/ASS) Track ID 2: audio (A_MPEG/L3) Track ID 3: video (V_MPEG4/ISO/AVC)
Next, use mkvextract to extract certain tracks / attachments based on the output from the above command:
mkvextract tracks MovieFile.mkv 1:thesubtitles.srt 2:theaudio.mp3 3:thevideo.mp4
mkvextract will extract the tracks you listed and save them to the specified filenames.