I've just completed my first trial run with XP service pack 3. I installed it on top of a fresh copy of windows XP Professional, installed i a VMWare virtual machine. It installed without a hitch, seemed faster than the SP2 installation.
I've since run a Windows update check, and there were only 3 "high priority" updates. Not perfect, but much better than the several hundred MB of downloads and several reboots required after an SP2 installation.
My plan is to install a few basics and keep a copy of this VM for use as a base for various tasks. The first one will be a Visual Studio 2008 VM. 8 GB will probably be just enough* for this, but if I can keep it to 8 GB I can burn copies to DVD. My intention is to have task specific VM's, rather than one do-everything machine.
It will require a little more discipline, but I think it will serve me better in the long run, especially as I do more and more on Linux. Launching a Windows VM on demand should be more convenient than dual booting, except perhaps for gaming. However, my computer gaming time is pretty much non-existent these days, so it's not really much of a sacrifice.
* As it turns out, 8 GB really insn't enough for Visual Studio 8. Actually, the install was OK, but I removed C#, leaving me with less than 1GB. This, unfortunately, is unsufficient to install any of the docoumentation and reference material. I'll see how this goes, I can almost certainly have the doco on a second monitor / machine in most instances. Otherwise it'll be a 10-12 GB build.