Ive worked with codecs for awhile, but Ill honestly admit I dont know what a "splitter" does.
The concensus of opinion appears to be Haali Media Splitter is a necessary component for smooth MKV playback.
Latest version (2004-2009 Mike Matsnev) solved my thumbnail problem (Invalid byte error) in Win XP.
Untick AVI Support during install. Set "extract thumbnail" to YES in Haali Media Splitter Config Options.