One thing about installing SP2- Make sure you go back to the default Windows XP stuff(visual style and bliss and logon on screen and to the default boot screen) before installing SP2. Also make sure nothing loads up on start up.(windowblinds, DesktopX, Object Dock etc.) Install SP2, after downloading it will ask you to reboot. Click yes. Be Patient with this first reboot will take a while, the OS is altering system files etc. Do NOT mess with the process. It will take a while.(Mine was 5minutes in rebooting). It will then go to the log in screen. Sign in. This is optional, but I rebooted mine again and the second reboot time was back to normal. If these reboots went okay, then you can restart all the Desktop applications and should not experience any problems.
PS: For some reason, my OS with SP2 thought I had a change in hardware and made me reactivate windows. I had no problems reactivating it.