Windows 8 (64bit) on dell xps 8500

Microsoft so far have failed to provide a Windows 8.0 or Windows 8.1 .iso for public use. They have in fact made the update process extremely difficult and issues such as those you are experiencing aren't uncommon and could be fixed with a direct clean install of Windows 8.1. I don't know why its so difficult.

As you reside in the US you may fill in this form to request installation media from Dell: https://www.dell.com/support/diagnostics/us/en/19/nondiagnostichome?dgc=SM&cid=266887&lid=4921161

You may use such media to clean install.

You may also try upgrading Dell Backup and Recovery to the latest version... which should fix Windows 8.1 incompatability with  creating factory restore media:

http://www.dell.com/support/troubleshooting/us/en/19/KCS/KcsArticles/ArticleView?c=us&l=en&s=dhs&docid=627550&dgc=SM&cid=266887&lid=4966974 

Personally I would recommend requesting the OS media.

The product key resides in the system BIOS and Windows 8 installation media should automatically input it during the installation.

Yes, I have exactly the same problem - the DVD drive no longer appears on the Windows 8.1 drive list, and system info reports an error for it. Nevertheless, I can boot from it, so it's still functional. 

I've updated to all the latest Dell drivers, so I'm not really sure what the problem is...

You can try disabling the DVD drive in the BIOS setup and booting into Windows 8.1 and then powering down and re-enabling it to see if Windows 8.1 finds new hardware.

I found a solution on the Microsoft support site that works for me:

Checking the CD/DVD ROM drive in msinfo32 (Components/CD-ROM) showed an error condition: 'failure using the VxD loader'

Checking the Device Manager entry for the CD/DVD ROM drive showed an error 19.

This led me to the following Microsoft support pages:

http://support.microsoft.com/kb/314060  

http://support.microsoft.com/kb/310123

The first link suggests trying the Windows Hardware and Devices Troubleshooter. Running this found the problem (it's a driver registration problem), but the automatic fix (reinstalling the drivers) didn't solve it.

The next option is to manually edit the registry entry for the CD/DVD configuration to delete the UpperFilters and LowerFilters entries. I actually renamed them rather than delete them, so I could reinstate them easily:

Open the Registry Editor. In the navigation pane, locate and then click the following registry subkey:

HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Control\Class\{4D36E965-E325-11CE-BFC1-08002BE10318}

In the right pane, click UpperFilters.

Note You may also see an UpperFilters.bak registry entry. You do not have to remove that entry. Click UpperFilters only. If you do not see the UpperFilters registry entry, you still might have to remove the LowerFilters registry entry. 

On the Edit menu, click Delete (alternatively rename the entry).
When you are prompted to confirm the deletion, click Yes.

In the right pane, click LowerFilters.

On the Edit menu, click Delete (alternatively rename the entry).
When you are prompted to confirm the deletion, click Yes.

Exit the Registry Editor.

Restart the computer.

This worked for me. The CD/DVD ROM drive is back to normal.

Brilliant post. Worked instantly.

I didn't need to restart though, I removed the UpperFilters string value, uninstalled the device using devmgmt.msc then scanned for hardware changes.

Thanks for sharing.