I understand that the N8 will not play HD movies over 2gb - is that correct?

Problem is I have a HD movie which is in an MP4 format but will not play on my N8 (broken icon appears) this file is currently 490mb

So I attempted it to convert it to an MKV format but the output folder shows that the file would increase from 490mb to over 7gb!!

What the hell?? All I want to do is play a HD movie from my phone to my TV.

I keep reading that the N8 plays a wide aray of video formats - but it would not play my HD movies in avi format or MP4. Any converters out there to keep the size down? Do I have to split them - how would I do this? Would it mean the movie stopping every half hour or so and me selecting the new file to reload?