I got the same thing while trying to apply this patch, to get seekbar clicking working, but seeing as you got the same thing it can't be related (and shouldn't be). Can't find anything in particular in the commits that seem to affect libdvdnav or dvdread-config (or dvdnav-config which seems to just be an alias, or vice versa), so I suppose it's been updated somewhere along the line in upstream, and something in the syntax changed, which sounds about right given the error message (mine seems to differ a bit:
config.status: config.h is unchanged
config.status: executing depfiles commands
config.status: executing libtool commands
Done, type 'make install' to build and install
Usage: dvdnav-config [OPTIONS] [LIBRARIES]
/storage/backup/xbmc-stuff/xbmc-git/src/xbmc/lib/libdvd/libdvdnav/../libdvdread/obj/dvdread-config returned an error. Can't proceed
configure: error: Submodule lib/libdvd/libdvdnav failed to configure
I don't know anything about libdvdnav to know what to place as the prefix/exec-prefix/libs/cflags, and certainly not the libs, so I'm at a loss. Guess this should be created as a trac ticket, but I would think they're on top of things.
Glad to see I'm not alone, atleast.