I’ll try to explain the terminology to you, which should help you maneuver these kinds of questions a bit better:
Lossless video encoding creates files that are hundreds of gigabytes, or larger. It is used as a permanent archive of a video stream, that can then be encoded (with loss) into more compressed formats for viewing. Or, to import into a program for editing.
You can’t go from one lossy format to another lossy format without re-encoding and losing some information (with lossy being anything used for actual viewing, such as blu-rays and DVDs and such).
But you’re not interested in re-encoding. MKV and M2TS are containers that hold video and audio streams. The Despecialized streams, including the x264 video stream, are blu-ray compatible. So all that needs to be done is putting them in a new container (m2ts). There is no loss involved in that process. It is also very fast. Seconds or minutes, as opposed to hours of encoding. This is called multiplexing or “muxing”.
You can remux an MKV to blu-ray m2ts easily using tsmuxer (gui). If you choose blu-ray format, it will put it in the correct directory structure (and ISO if you like), so that it is ready to burn. You can also choose to demux the MKV. This will give you all the video, audio, and subtitle streams in the MKV, which can then be imported into programs like Encore. You might need to change the file extension of the video stream for Encore to recognize (I vaguely recall it preferring .m4v to .264.
Don’t worry. I’m familiar with the subject (for example: Harmy probably sent you the raw encode of the Despecialized Edition of the original Star Wars, to avoid even the slightest quality loss compared to version 2.5). But from what I understand here I can execute the process you were generous enough to explain, and just copy the m2ts video file and load it in Encore to make a custom Blu-Ray from scratch…
I’ll also change the file extension.