If you don’t want to install the windows updates and service packs each time you reÃ¯nstall Windows (which can be like every few months), you might want to consider installing the service pack onto the Windows installation on your Windows CD. This process is called slipstreaming.
With the new Service Pack 2 out for XP, now is a good time to update that winXP CD again.
Check out this post on MSFN about slipstreaming. It explains all the hows.