I may have found the answer? There is an MS Knowledge Base article which describes the fault I am having.
It would seem that the intellipoint software loaded with a MS wireless optical mouse (which just happens to be what I'm using...) can cause a problem on XP with SP2. The article suggests to disable DVD Launcher (apparently this verifies that the inserted DVD matches the DVD region selected for your DVD player), the article does not say what the consequences of disabling this are?
I might try this tomorrow if I get some time to 'play', I'll let you know how I get on.