Actually it does support AC3 but you can't use MP4 you need to use the extension M4V.
i am exactly the same as you fella but i a m not sure i am making my self very clear. i want the same where mkv is remuxed (not rencoded) to a file type that is able to import into itunes but is also playable on my ps3 i think he problem lies with the audio that is contained in the .mkv for example itunes does not support ac3 audio in an mp4 container. but the ps3 does . same with dts . i think both support h264 with aac audio under the mp4 container. where as neither support .mkv
Does your PS3 play M4V?