One thing I've noticed is that unless xine-lib was compiled with the presence of a dvd-reader library (eg libdvdread) or a dvdnav plugin has been installed, then xine won't offer you the option of dvd. I fell foul of this before I decided to compile my own xine installation, which solves the problem.
Therefore, my solutions are
either 1) dig out a dvdnav plugin (mandrake may have one lurking somewhere, or you may be able to download it)
or 2) install somethign like libdvdread and recompile xine-lib
(oh, and libdvdcss would probably come in handy if you want to illegally watch standard encoded dvd's on Linux. not that we are sugesting you do such a thing. Oh no.)