The only way I was able to reproduce your error was by not having X windows running. Make sure that you are launching Xqt first. If you do not have X running the xqt-xmms package will not work. You will need to install the xqt-xmms-mad package to play MP3's. I have not looked into getting a QT xmms port working at this time.
Kino2 now has playlist support. The performance is quite good as well so you might want to give it a try.
Hope this helps...