After a day of messing this, 

*of course I answered it myself moments after posting!*Answer was to define 
columns used and to use {{=XML}} helper:a

<script type="text/javascript">
$(document).ready(function(){
    $("#person-table").DataTable({
        "data":  {{=XML(results)}},                
        columns: [
            { data: 'first_name' },
            { data: 'last_name' },
            { data: 'id' }
        ]
    })
});
</script>

-- 
Resources:
- http://web2py.com
- http://web2py.com/book (Documentation)
- http://github.com/web2py/web2py (Source code)
- https://code.google.com/p/web2py/issues/list (Report Issues)
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