1. CD's still work (you didn't really tell, but as Windows XP comes on CD it most probably did 'recently', so there's a 90% chance it will still do)
2. The laptop has a DVD-drive (I didn't check, but nowadays most do)
you better replace the drive.

To play DVD-movies on Win XP you need to install some program. It's not supported out of the box. But data-DVD's are.