xine doesn't support encrypted dvd's.  install libdvdcss and you're all set.
worked for me under Slackware 8.1 with the following installed:

xine-ui
xine-lib
libdvdcss

Mark Courtney wrote:
> A friend of mine was asking me about playing DVDs with xine.  Since I've
> never owned a DVD drive, I wasn't much help.  I plan on purchasing a DVD
> drive some time in the future, so I thought this was a good place to discuss
> some issues.

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