Should have asked earlier but have you region changed it back using Enigmah to see whether it (still?) works correctly in PAL mode?
What Xbox version are the non-working and working one? v.1.6 Xboxes seem to have more quirks and it occurs to me something to do with that is just as likely as your region changing theory. Maybe it's even a combination of the two.
Another long shot: are you sure the DVD kit you're using is OEM and not an unsuspected counterfeit? The dongle should have a metal plate on its reverse
detailing several things including its Part No.: X08-25402 and country of origin. My UK bought one was made in Indonesia and has the usual CE Euro compliance symbol alongside two others.
In short: sorry, stumped too.

Ah, you might be onto something there...
The old xbox is a 1.4 IIRC, the new one (with the problem) is def. a 1.6.
I will try switching the region back to see if that works, I only switched regions so I could use the HD kit, it doesn't work on PAL machines I believe.
The DVD kit is def. genuine, not some dodgy ebay kit
Thanks for the advice...