I finally resolved this issue (which is a lil' too late since I switched to Vista Media Center already)... i uninstalled all DVD playback software (PowerDVD, WinDVD, TheaterTek, etc.) and all video codecs (divx, xvid, mp4, etc.) and installed the latest version of Nvidia Decoder and the subtitles went away.
Afterwards when I re-installed my video codecs I carefully made sure not to install any MPEG2 related codecs or codecs I wasn't too sure about.
I believe the problem was with the ArcSoft DVD decoder I had installed the whole time (which I believe is also built-in to Windows or something like that). I think it was the DVD decoder used whether PowerDVD or WinDVD was installed or not. Weird.