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The switch that detects whether the door is open or not could be defective. You can locate the switch by the notch on the disk lid and where it inserts into the base. Try triggering the switch by pocking it with a paper clip while the lid is open. If it says that it is closed and the disc plays then the lid isn't closing securely. If it still says the lid is open after you can hear or feel the switch click then it may need to be replaced.
Sounds like you need the Gamecube sensor switch replaced. That is a small door device for detecting when the Gamecube DVD door or lid is closed allowing disc initiation to begin. When your Gamecube doesn't detect disk at all and simply continues the message: "Please insert a NINTENDO GAMECUBE DISC," this is the problem. You can test this by inserting a game disc, opening the Gamecube door, and then closing it. If the message "Please insert a NINTENDO GAMECUBE DISC" remains unchanged, and there is no spinning of the disk, then your GameCube lid closed door sensor is probably broken and should be replaced. You can search Google for Part GCPT032, or for GameCube Lid Closed Door Sensor.
An easy fix if you know how to open the Cube. It's cable simply plugs in, and it is held by one tiny screw.
there is a small button in the slim that picks up the door open or closed. if the plactic pic on the lid is broke it will read as the door open even if the door is closed. you can takeit apar tand tape down this switch.
As I always suggest for consoles of this age, get a new one. You'll find PS1's with a few games on ebay for around a tenner nowadays.
Your console could have any number of faults, faulty/misaligned laser unit, faulty spindle motor, faulty lid catch sensor, and the cost of replacement parts would probably be more than a replacement 2nd hand console.
ok guys i have 4 dreamcasts the problem is people beat the crap out of em. try holding the lid partially closed with a weight on top it should read the disk and play good. the sensor that tells it there is a disk in there is probaly a little screwed up.
Also get a clean cue tip and some 91% rubbing alcohol and gently clean the lens on the laser and it sould work like new.
so get to the browser with the lid open all the way put a disk in and slowly close the lid at about 80 percent closed it should say reading disk put a weight on the lid to keep it where it is and try the game if it works your good.
permenent solution. remove modem and the 4 screws at the bottom of the dreamcast without a disk in there pull the top off. now look at the part of the lid that hits the little black flapper (it's on the top right of the main board) now tape or glue a small amount of anthing to the part of the lid that hits the switch about 4 mm thick of paper taped to it will push the switch further in and it should recognize disks better now and all will be well in the world e-mail me for pix if you want firstname.lastname@example.org