Do you have any other applications to watch DVDs on the system? Somehow DVD player is missing in action! To make sure there's nothing wrong with the system, if you don't have anything else to watch DVD's with, download VLC for Panther (OS X 10.3) from
http://download.videolan.org/pub/videolan/vlc/0.8.6c/macosx/vlc-0.8.6c-powerpc.d mg . It's a good general purpose video viewer.
Once downloaded, go into system preferences again, click CDs and DVDs, click on the drop down menu on insert a video DVD, choose open other application, then choose VLC (you want to highlight the application with the orange and white traffic cone icon).
When you insert a DVD movie, VLC should come up, but it may not start the movie automatically. If not, just click on the large 'play' triangle, it will bring up another window, click on disk, that will bring up another window, just click OK, and your DVD movie should start playing.
Does that work?