I experienced the same thing yesterday. 20G Phatbox, Passat wagon with Monsoon radio, worked fine for two weeks, then "NO CD".
The DMS mounted fine in my PC, and all the songs were there. I rebuilt the database and the voice prompts, but to no avail.
So I unplugged it, waited, and plugged it in again, and it worked.
This was with an unmodified Phatbox, so it sounds like a lame bug. I checked, and I have the latest VW firmware.