AFAIK Xine does not have the ability to start automatically when you insert a DVD. Just to confirm, you did install libdvdcss as posted above right? Check the configuration of XINE to make sure it's using /dev/dvd (should be default).

Is DMA enabled for your dvd drive?
Code:
hdparm /dev/hdb
/dev/hdb:
 IO_support   =  1 (32-bit)
 unmaskirq    =  1 (on)
 using_dma    =  1 (on)
 keepsettings =  0 (off)
 readonly     =  0 (off)
 readahead    = 256 (on)
 HDIO_GETGEO failed: Invalid argument
You can also try mplayer. From command line it's like this:
Code:
mplayer dvd://1 -dvd-device /dev/hdb