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Have you tried cleaning the lens?
My reason for asking that is if the lens is dirty it may have difficulty in reading the CD thus fooling the DC to think there is no CD in place so rebooting itself. Ok that sounds a silly idea and is probably very wrong but its worth a go until the more experienced get chance to reply.
PS: be careful when cleaning the lens (if you do so) try to search google on the best/safest way to do it.
Sry im not more help.
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VERY, VERY IMPORTANT: Opening up your Dreamcast will invalidate your warranty, so if you do not feel you can carry out the task, don't! Only use this process as a last resort.
Please note that the structure may be slightly different in Dreamcasts of different regions.
Unplug your Dreamcast, and leave it for a while to make sure that there is less chance of static electricity. Detach the modem from your Dreamcast, and open your Dreamcast's case CAREFULLY. Now, you will see a mains board (the smallest one), the Power Supply (the biggest chip) and the Lens.
You will only need to touch the Power Supply, the biggest chip. Unlock it slowly and carefully with a screwdriver. You will see a plastic thing and six pins. The pins are the cause of many Dreamcast reset problems! Clean them very thoroughly (with a spot of carefully applied WD40), and clean the chip and plastic thing very carefully as well if you wish. Only the pins really need to be cleaned, but no harm in making sure if you're careful.
Now, bend the plastic pins SLIGHTLY to the back of of the DC - this helps to ensure the connection will be better. Finally, ensure that there is not too much dust in your DC, then close the case.
This solution is said to solve 99% of DC reset problems. I really hope it helps anyone out there who has a stubbornly resetting DC. ^_^;
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Thats the sort of reply i knew he would get (not lame efforts like mine was lol)