Are you splitting the video out from the DVD player or do you run composite to the modulator and svideo/component to the receiver or theater tv?
I run composite to the modulator, and component to the Theater receiver.
Does the composite look good on a local tv (i.e., not running through the modulator)?
By the way, I also like a PC-based approach. However, this will take you to either requiring a PC (or other box) at each viewing location or right back to needing to distribute video from a single PC (just like from your DVD player). So, if the problem is only Macrovision, this will solve it. However, I'd be surprised if it is a Macrovision problem.
Maybe it's a signal level problem? The composite signal from the DVD player may be higher or lower than spec. I haven't run into this with normal components, but I have had problems with cameras with composite signals that were too high or low. The cameras worked fine when fed into a TV directly, but would not give me a signal when through a 4x1 video selector. With some cameras, adding a 75 ohm resistor between signal and ground cleared up the problem. (This was a suggestion from Ryan at www.controlanything.com
and worked great.)