I don't know if you already knew this, but Windows XP SP3 has issues; reboot issues to be precise. I downloaded and installed SP3 on my machine, and after it's installed, of course, you have to reboot. The sucky thing is that Windows XP SP3 causes an endless loop of rebooting your machine after about 15-30 seconds. Safe mode does the same thing. If you don't have a dual-boot system, this can become quite a mess.
So why did Microsoft release a faulty service pack? Because they included an Intel Processor Driver called intelppm.sys This conflicts with computers running an AMD Processor (such as mine). There is a tool which supposedly fixes this boot problem. Visit Jesper's Blog to download this tool. It's a vbScript app which removes the intellppm.sys driver from being installed on SP3. Does it work? I have yet to find out.
If XP SP2 works just fine, don't bother updating. Don't let Automatic updates nag you about installing SP3. If you experience problems, uninstall SP3, and ignore any Windows messages regarding to installing SP3. I'm gonna stick with SP2. I haven't found any other issues yet, because I can't run the stupid thing. Google Windows XP SP3 Reboot Problems, and there are over 2.7 million hits!