LG TV's don't support subtitles embedded inside MKV . Reason seems to be quite stupid: Inside MKV, subtitles must be in UTF-8 format and if not allready, MKVtoolnix will convert subtitles to UTF-8 automatically when muxing. Now, stupidity explained: LG TV's don't support UTF-8 text format -hence, subtitles inside MKV aren't shown.
That is, you must have separate subtitle file with the same name as MKV has (you know, like with avi). But those extracted from MKV can't be directly used, because they are (as said) in UTF-8 format -you must convert them back to ANSI (i.e. by using Notepad: Save As.. and select Ansi encoding).
I hate separate subtitles... so I bought mediaplayer for watching my MKV files.