There are many, many posts explaining that this is not only possible and OK, but it is in the user manual that came with your computer. Maybe not necessarily DVD playing, but closed lid mode. If it was not possible to do this, closed lid mode would not be touted as a feature. The Powerbook is now designed to work with the lid open or closed. You don't need to worry about heat. If the machine ever got too hot to cause a failure in any mode, Apple wouldn't ship it. Hook up that monitor, pop in that DVD, close the lid, wake her back up with a keyboard, and just enjoy your machine.
Steve