I finally figured out how to get KDE to launch Xine when you pop in a video DVD. Create a new action for DVD Video Disk and call it something like Play DVD. For the launch command (this is the tricky part) use something the following:

xine dvd://1 #%u It seems that KDE passes the mount url to the command regardless. You'll get errors like "KIOExec error, /media/cdrom is a folder, but a file was expected." So you fake it out by putting the url (%u) after the #. So it basically runs the Xine command and then a comment: the URL. Sort of a hack, but it works great.