It would be useful if the N900 could play these 720p .mkv files and output the result by DLNA/uPNP. And if you have a TV/Receiver that can receive it and display it.

HD output by composite should be fairly useless, keeping in mind how crap composite is. Showing it on the N900 screen aswell as it is to small to even notice the difference against a lower resolution XviD.