yes, windvd 3 works in xp. at least it does for me. i have powerdvd 4 xp, windvd3, ati dvd, and windows media player. they all play dvds. windvd is softer in volume for me. it's not as low with voices for some reason on 5.1 speakers setup. the powerdvd 4 XP is doing a good job for me in sound and everything else. but i'm not using the digital out. if you do, you have to set the sound output to "USE SPDIF" and it should do the AC-3 out for you. and yes, you should get 5.1 out of either windvd3 or powerdvd 4 XP. you can check out my system in the sig if you think it makes a difference.