There are a few things to try to solve your problem, although I confess I haven't seen this issue in production before:
- Look in the System event log to see if there are obvious errors that you could Google for more details. Look in Start -> Control Panel -> Computer Management -> Event Logs and click on System in the left pane.
- Have you tried using the network download version of XP Service Pack 2? You can find this version of the service pack -- free, just like the other format. Something in the Automatic Update subsystem may be corrupted.
- Consider running a repair installation of Windows XP. Just insert your original distribution media, run Setup again, and choose to install over your current system. Then, once that process is finished, try installing Service Pack 2 from the network version I just mentioned.
This was first published in September 2007