According to the Akai web site, the 3410 will play VCD and MP3, so my guess is that it won’t play MOV or AVI; you can probably play your mpeg’s, if you get the CD encoding right.
Don’t know of any free dvd software for XP, other than those that come bundled with most DVD drives. Note that for Mandrake, you’ll probably end up with the notorious DeCSS software, whose legality is somewhat questionable. AFAIK, there is no Linux-friendly DVD software licensed by the DVD consortium; if there is, it’s probably not free, as the license costs are non-trivial.
You might want to get a DVD writer – they’ll write CDR/CDRW as well, and prices are falling (<$200 at the low end), and you’ll get DVD software with the drive. DVD media is still a bit pricey, but CompUSA/OfficeMax/Staples often have special offers bringing the cost down to about $1 per disc.