On the disk drive itself, check the small sensor switch for disk change. It may have gummed up/stuck. This would cause the drive to not sense when a disk is inserted/removed, causing the exact problems you describe.
If that switch looks ok, I'd check all the pins on the back of the disk drive and make sure none are bent or not connecting. (As well as examine the cable.)
It really sounds to me like the computer just isn't getting the signal for disk change.
