I havent had a lot of problems with service pack 2, The only thing is before installing it I had 19 services running with a fresh install blackviper.com got me down to 16  with sp2 a fresh install was around 26 and could only get down to 22 thats 7 services more with sp2 I try to keep everything streamlined and fast as possible So I chose to stick with sp1 I never really had a problem so I really didnt see in need to upgrade I will say for me anyway sp2 worked well though when I used it. I would say to slipstream if you can, if not do a fresh install and install it before you install anything else even drivers.

The best way I now of is too slipstream sp2 with windows and make a bootable CD that will be your new xp CD.  If you have a restore CD like me you cant do it that way. 
My advise is save you data, Install it if you dont have issues your fine. If you are like some people and have problems. The other way is to reinstall windows and install sp2 first, then drivers etc. Then go to blackviper.com and turn off some services you dont need.  Most people that I now of dont have problems installing it over there current install though.  I decided to reinstall cause its been like 2 years and just wanted to start clean agian.