"I tried the MKV file format and all I got was audio and upon hitting "Enter" a second time, I got the CD icon + audio indicating KODI was treating this like a music CD."
Typically this will happen if the file you're trying to play is not supported by the Pi's GPU - for example trying to play an MPEG-2 file without an MPEG-2 license installed.
Upgrading your Kodi version should have no impact on this at all.
I suggest you try the ffmpeg test I suggested earlier - without this info it's really impossible to offer any advice.
I see that you can't easily install ffmpeg on OSMC, so use avconv. You can install with:
sudo apt-get install libav-tools
Then you should be able to get the video info of <file> with:
avconv -i <file>
It will complain that you haven't specified an output file, but we don't care about that. The Stream # lines are the interesting ones. Here's a file on my PVR:
Stream #0:0(eng): Video: h264 (High), yuv420p(tv, bt470bg), 720x576 [SAR 16:11 DAR 20:11], 25 fps, 25 tbr, 1k tbn, 50 tbc (default)
Stream #0:1(eng): Audio: aac (HE-AAC), 48000 Hz, stereo, fltp (default)
Stream #0:2(eng): Subtitle: dvb_subtitle (default)
This is a standard definition file encoded with h264 [i.e. mp4]. It would be useful to see what yours report - remember it would be most useful to see the output from one that plays properly, and one that doesn't.