I used the free program hand brake to convert .mkv files and ISO image files to .mp4 or .m4a files. I did this on my laptop. Then I put the new files onto the surface. The default video app plays .mp4 & .m4a files. This works for now until there is a video app that plays more formats.
HandBrake is a great program but not all that intuitive. I suggest checking out DVD Catalyst. It's easy to use, optimized for tablets and they are a forum sponsor with plenty of great assistance. And they even have a Surface to test videos on. I own it and it's cheap at $10 US.
The associate where I bought my Surface told me the player would play flac files. Is this not true? It's not a big deal to convert flac to mp3, but it would be nice to be able to play flac files directly.
Will more music player apps eventually become available, or is MSFT trying to make everyone use XBOX. It would be nice to be able to play WAV, FLAC files. On my Android phone, there are numorous good music players. My favorite is PowerAmp.