Then its a good job you didn't actually point the installation at your main disk as it would have completely reformatted the drive and killed your Windows installation! (I'm sure you have read that in the FAQ
If you pointed the installation at the other drive, then clearly there is no way it could have made it dual boot, as it doesn't know which drive or bootloader is being used - it quite reasonably assumes that it should create a bootloader on the installation disk that will be used exclusively to boot LMCE. The DVD is an image drop system, after all.
If you need to dual boot, you could potentially use the CDs instead. This is because you have to install normal Kubuntu 0710 (no updates) first, and this will give you the option to install it dual boot alongside Windows and create a GRUB loader to go with it. In fact it modifies the Windows loader to have an extra entry that points to the GRUB loader. CD installation will take over 3 hours, however, and don't hold me to this as I haven't got through a dual boot install with Kubuntu 0710, only 0810 which doesn't work yet with LMCE.
Failing that, you will need to look up how manually to modify one of the loaders. Haven't got time to go through the video question with you at the moment - you need to create a new thread for that as it is potentially a dedicated task on its own, and you need to attract the right minds.
.mkv files should be scanned in. As long as they have the .mkv extension. x.264 shouldn't be a problem (although it depends on bit rate, resolution and your hardware, because you won't be getting any graphics acceleration in the decode). First up, make sure that other video formats are getting successfully scanned in on the same drive - you seem to be saying that on other drives, other file formats work fine. Move one of those to this drive and see if it gets scanned in. If not, go to the web admin under media sync and check that it has a big check mark next to it indicating that it has been scanned it. Basically, you need to determine is it the drive not being scanned properly, or something specific to these files.