1. VLC DOES support MKV, but it doesn't support .ASS subtitles.
2. So why can the other players around, like Zoom, MPC, MPlayer etc. support .ASS? Magic? Face it, VLC's developers just never got around to implementing the ASS spec, so it's NOT a good choice for watching most fansubs. If you don't cater to your consumers, your product sucks for their purposes, end of story.
What are you, some kind of VLC fanboy? Can't you just switch? (I assume you're on Windows because you're too retarded to be using Linux...and if you're on Mac, lol too bad)