The fix is in this response (last thing) - but i am posting the entire thing
so that maybe those researching SP3 and installing it, etc might find it in
their searches and avoid problems and have the answers they mifght need
BEFORE they get into certain situations.

Install SP3 wisely.
Clean up your machine, update drivers, update software, back it up and go.

Steps to take before you install Windows XP Service Pack 3
http://support.microsoft.com/kb/950717

Release Notes for Windows XP Service Pack 3
http://download.microsoft.com/download/c/d/8/cd8cc719-7d5a-40d3-a802-e4057aa8c63
1/relnotes.htm

Key things to note:

Internet Explorer:
"If you have installed Windows Internet Explorer® 7 or a beta version of
Internet Explorer 8, and then install Windows XP SP3, you cannot uninstall
Internet Explorer.  To avoid this, ensure Internet Explorer 7 or a beta
version of Internet Explorer 8 is not installed before installing Windows XP
SP3.  If you have already encountered this issue, uninstall Windows XP SP3,
uninstall Internet Explorer, and then reinstall Windows XP SP3."

Windows XP Media Center Edition 2002:
"If you install Windows XP SP3 on a computer running Windows XP Media Center
Edition 2002 with SP1, Windows XP Media Center Edition may malfunction.  To
avoid this, install Windows XP SP2 before you install Windows XP SP3.  If
this issue has already occurred, uninstall Windows XP SP3, install Windows
XP SP2, and then reinstall Windows XP SP3."

It seems some people are unable to get further updates after installing
SP3...  Seems some have experienced a symptom similar to doing a repair
installation on Windows XP - and the same fix seems to work for them for
that...

Updates are not installed successfully from Windows Update, from Microsoft
Update, or by using Automatic Updates after you repair a Windows XP
installation
http://support.microsoft.com/kb/943144

With all that - you should be fine.

I have been up able to instal updates since installing SP3 after a fresh XP
instal. Is there a common thread to this.