Also, know that while cd-r's work, cd-rw's will not.
CD-R, DVD-R, CD-RW and DVD-RW all use different types of lasers. Any PC-based CD/DVD burner actualy has 3-4 different lasers in it, depending on what it supports (hence why they take so bloody long to figure out what gets put in them when you load a new disc up).
The DreamCast laser can read CDROM and GDROM. AFAIK GDROM is simply a double-density CDROM, hence why CDROM still works fine in DC's without a mod.
Modding a DreamCast to read anything other than CD-R will do damage to it over time. Not to mention the fact that CDs can be purchased for mere cents these days, why the heck would you bother risking the life of your DreamCast's laser (meaning you have to fork out for a new laser, or a whole new DreamCast) compared to spending a few bucks on 100 CD-Rs?