Its pretty easy. Here are the general steps:
-first you need to have the lagarith codec installed, and virtualdub
-Open up notepad or some general text editor
-copy that script I pasted above, and modify it to your file and location, and framerate
-save as All Files with .avs extension (ex: MKVscript.avs)
-open this *.avs file in virtualdub.
-under video settings change compression to lagarith (under settings, it should be set to RGB as default, Vegas requires RGB)
- set your audio (I generally set it to NO AUDIO and handle this separately)
- FILE -> SAVE AS AVI...
for audio, I generally demux the audio stream from the MKV (using MKVextract, in the MKVtoolnix package) and split into 6 mono WAVs using BeSweet. If you just want a PCM stereo track or something, you can have virtualdub convert it to this and include in your AVI (change audio settings to full processing mode, and change the compression).
hope that helps