I still don't know what caused it, but it seems to be working after a complete format and re-installation of Mac OS 10.4
Earlier today I connected a firewire CD-RW and it had the same issue. I'd just get a message the disk could not be read when any audio cd was inserted. Just audio cds though.
So it must have been some software that was installed, perhaps an update or perhaps iTunes 7, I don't know. I do know that when I wanted to do the last SW Update earlier in the week it wouldn't get anything. I had to end up downloading iTunes7 manually.
This is a development and test system that I wanted to clean out and start from fresh anyway, so it's no big deal. I'm glad I decided to do that now instead of possibly wasting a trip to the Apple store.
My girlfriend will also be happy because I've created her a user account on the system and will be showing her how to rip CDs in iTunes (encoded through LAME of course). Which also reminds me that I just nuked two songs she bought from iTunes last night. Hmmm. hopefully they let you download them again...