David R, please try the following:
1. create a separate "media library" volume on a separate drive (such as an "M:\" drive) - Note that Power DVD cannot access files on the C:\ drive while the system is locked down.
2. move the iso file and Power DVD reference to it to the new volume location
3. secure Lockdown will not reload an app (if it is closed) if it not the main process. In other words, the EXE you're running as the Master Application is not the Power DVD app, but a launching app that exits immediately. There is probably another Power DVD exe (the real process) that can be run directly with a command line referencing your iso file. Look in the program's Program Folder for another exe.
Please make sure you're running the latest version of
Secure Lockdown - Standard Edition found here.