I have the answer to fix this problem. You must cycle the DMA setting for DVD IDE drive from DMA to PIO, then back to DMA.
First go to Device Manager, click through to Advanced Settings for the IDE Primary Drives, switching from DMA to PIO. Start your DVD player, which will now work but be choppy, then pause the DVD, go back to Device Manager, and switch the settings back to DMA.
Exactly why this works, I don't know, but it sounds like a Windows XP interaction with something like a Sony Rootkit to me.