Mkvmerge also comes with mkvextract. Download mkvextractgui and place into the install folder. You can then extract the DTS stream without it being still in another mkv container.

Then build a graph using graphedit of DTS File -> AC3Filter (leave outpit pin empty)

Load the .grf into meGUI. Choose your settings etc and encode.

However, there are much better ways to convert. Such as using Eac3to with Nero 7's Audio Decoder 2 because it does not apply DRC. Second choice would be Eac3to with Sonic Audio Decoder.