I have a Gateway PC that came with XP Pro. I got SP2 installed as a regular part of Windows Update. I did nothing at all before installation and it worked just fine. The first reboot took a little longer than normal (it sat at the WindowsXP screen), but I could hear the disk drive reading so I knew something was going on.
The Windows Security Center could not recognize Norton AV 2003 software so I specified that I'd monitor that on my own. Other than that, no problems. BTW, I have a number of devices attached to this PC, e.g., external Firewire hard drive, external UPS with USB connection to the PC, and had no issues.
Note that SP2 has a lot more in it than fixes to IE or Outlook. It includes a good deal of re-compiled code in addition to new features like the security center. So, if you plan on continuing to run XP, install SP2.