I find myself suspecting that there is something very strange wrong with Windows XP SP3, or at least with the installation procedure for it. I had been running this Fujitsu Lifebook S6510 with Windows XP Professional for several months when SP3 came out. I installed it, and everything seemed to work just fine. However, because I have started to use Linux quite a bit more, and I wanted a multi-boot system with Windows and Linux available, I bought a new SATA disk, and reloaded everything from scratch.
As described previously, the first time I reloaded XP, and I just let it go through the update download and installation from the Microsoft Update server the way it wanted, I ended up with three updates which would not install. So I went through the entire reload procedure again, and this time I forced those three updates to install before allowing SP3 to install. That seemed to work ok, but within a few days I started getting BSOD crashes, system hangs, and various other unpleasant surprises from XP. This laptop had most certainly not done that before, so I went back and reloaded one more time. This time I didn't let it install SP3 at all, I just forced it to install all of the SP2 updates. Since then, the laptop has run flawlessly, not a single BSOD.
I don't necessarily think there is anything wrong with SP3 itself. But based on this experience, and what has been posted here by several others, I think there may well be something wrong with the installation procedure for XP3 when you are loading a new system from scratch. I have no idea whether it is a sequencing problem, or an interaction problem, or whether letting SP3 install early in the update sequence causes some critical updates not to be installed.
Whatever it is, it is real, we have seen it in several different cases now. Since I am using Windows less and less, I'm not going to press my luck and install SP3 again. But wouldn't it be interesting to know exactly what is happening and why?