I fixed it. I had stopped network services in the startup because I was using laptop-net. I hated waiting while the DHCP thing failed. So instead, I just changed the network config to only start the local network.
Still don't know why xine needs a network running.
xine can do lookups accross network for fileshares and also can use CDDB off the net...i also beleive there are codec downloads also soon to be seen...
why it looks to see if the interfaces are up on boot is a little unusual but may well be a quirk of the way it's programmed....i suggest asking Xine Irc/forums...