After many long nights of experimenting with the right combination of applications …success!

MY OBJECTIVE: Stream MKV video files from my Windows 7 x64 desktop to my Droid X via 802.11g.

On the Droid – install:
#1) Vplayer
#2) UPNplayer (launch this instead of DLNA)

On the Desktop – install:
#1) ffdshow
#2) Haali Media Splitter
#3) TVersity Media Server

I accepted all installations as default. You might want to tweek TVersity to get optimal results.