You do need a MPEG2 decoder of some sort. I think VLC comes with on built-in. Basically any other will use whatever's installed on your computer. If you install PowerDVD then use Media Player Classic, it'll probably use PowerDVD's decoder.
Divx won't affect whether you can play a DVD or not. Make sure that you have a DVD decoder installed. You can try downloading VLC and see if that will play a DVD, but if that doesn't work, then you need a decoder.