I also own a Shield TV 2017 on a 1Gbps Ethernet connection. And in fact, you should, whenever possible run direct play in local network.
The Shield TV (at least the 2017 model, not sure about the older ones) should play 4K content in MKV containers, also with HDR, without a problem. The only thing I was experiencing was, that when the server is handling some heavy IO or Network activity, there can be some buffering issues with high bitrate 4k files (obviously) but everything else is fine.
Just think about it, even when you have a very high bitrate 4k file, it’s mostely fine. For example, my highest bitrate is about 150000 Kbps, so about 150 Mbit/s which is fine for the ethernet. However, there could be a HDD bottleneck there. In fact, when there is no other Disc activity, this file actually plays fine without RAID for me.
But either way, this is a extreme case, and most files don’t have such high bitrates, especially when the encode is H.265. So usually everything below 100000kbps should work without any problems.
For audio: in direct play you will have all the audio that is in the file. So if the file has DTS, you will have DTS. However, depending on what audio setup you have, you may have to enable DTS pass through in the settings.
And also sometimes I have some issues with E-AC3 on my shield, it will play, but sometimes only in stereo.
Now, just make sure all the settings in the plex app on the shield are set to:
-DTS, AC3, Dolby etc. pass-through enabled
-Prefer Direct Play
-Disable the force transcoding setting
So this post was a little longer then I would’ve liked, but I hope it will help you.