I recently installed sp2 on my xp machine at home and ran into a variety of issues after the update was complete.  Namely problems with a few applications that needed a constant pipe to the web and I also had problems with OpenMg which is a media transform tool used with Sony minidisks.
After verifying my office system was stable with the mentioned programs and sp2, I noticed my home machine had very little disk drive space remaining on the windows xp partition.(approx 75mb).
It seems that sp2 will automatically install onto the native xp partition which inturn could cause a whole host of problems if for example you have xp living on a partition with less than 1gb free space.