mkv offers chapter metadata, sane vorbis support, sane vfr (variable framerate) support, and softsub support, as well as multiaudio and subtitle support.

vfr is nice for animated content, and softsubs are nice when your target audience is split between those that want subtitles and those that do not.

avi actually has multiaudio too, but few players support it. Vfr and vorbis are also possible, but very few players support vorbis in avi, and even fewer encoders can create it properly. Both vfr and vorbis in avi is horribly inefficient, with huge overhead.

I encoded a bunch of videos for someone on irc with n900. Iirc, h264 only worked if it was baseline, and properly identified itself as baseline. What worked perfectly for 480p didn't work with same settings in 720p, came up with an error message.