I have the exact same problem. The only place css encrypted DVDs that were ripped to the core will play is on the core itsself.
I have hundreds of movies ripped onto my core. They all work playing from the core. However, trying to play them from my 3 different MD's, they all fail. Sometimes I will get a libdvdcss error, sometimes it will just start playing the intro (FBI warning, etc.) then fall back out to the on-screen orbiter with no errors at all on the screen.
I have tried several times re-adding the software packages from within the onscreen orbiter, with no success. Libdvdcss does show as installed on each of the media directors.
I have also tried manual installation via:
sudo apt-get install -y libdvdread3
Still, nothing I have tried works..
I am using 0710 beta 4 (AMD64 core, i386 media directors)