Sounds like you're on the right track hardware-wise. I don't know if a dual processor would give you any benefit over just having a decent single one. I've done stuff like this a bit with PDP, since you can specify multiple displays. Mplayer or VeeJay would also do this with less overhead. Your dual-head video card should be sufficient so long as dual-head is supported, otherwise you could get an extra PCI video card and do it with that one. Skip Gnome or KDE and use Black/Fluxbox or LarsWm for even more efficiency. Could Mplayer run without X? That would be even more interesting ;-)
Another option would be to hardwire the "Start" button of two DVD players together so that they synch-start (if synch is needed), and use the surround outputs for discreet audio channels.
Good luck! d.