Got my AVCHD done and it looks amazing. Left out most of the audio options just for personal preference. All I need is Hairy Hen's, the 2 channel and mono 77' audio. I can't notice any shift in video quality from the MKV on my 720p TV.

EDIT: For those wanting to do the same. I used a program called AVCHDcoder (a quick google search can yield the download link). Load the MKV file into the program, select which audio streams you want to use, select the output size (I chose Dual Layer), select the output folder and let it do its thing. Mine took around 7 hours to finish but the results are very nice and can be burned to dual layer dvd.