Take your mkv file with subtitles and merge them using mkvmerge, this is a good time to take care of your audio files as well, I get rid of any DTS files and use the AC3 files usually included but if not just merge the DTS file. Make sure you tick no compression!! or it will not work in the next step. Have mkvmerge save the file to the same file folder as original, so you can find it easier. Now use mkv2vob to convert to mpeg2 and also tick always trancode DTS just in case you have a DTS sound file. And if you have merged a subtitle file then make sure you tick Encode subtitles, choose where to save file and let it run. I do this always and never have a problem with playing MKV bluray rips with multi channel sound and subs on my PS3 through Tversity. Although I only use subs on those few movies where needed, like Avatar!
There might be quicker ways now but this works for me every time and the quality is very high depending on your original copy of course.
Download MKVToolnix and MKV2VOB