I had a similar problem, and I struggled with it for nearly a week. (Of course, that may be because I know as much about Linux configuration as I do about Chinese rocket science.)
In XMMS, go to prefeences, and in your input plugin (presumably libcdaudio.so), click on the configure button. Make sure that the directory is pointing to an actual location - in SUSE, you have to switch the setting to /MEDIA/CDROM from MNT/CDROM.
Also, set the play mode to DIGITAL AUDIO EXTRACTION. That was the final step I had to take to fix my settings. Now it is working like a charm.