My two cents...
I work at a local repair shop, and we commonly reinstall XP as a service to our customers. Yes, you can try and solve individual bugs and fix each single problem one by one... but at the end of the day, what do you want more, to spend 6 hours on a project not worth your time, or to have a nice, brand-new install done in half the time?
Anyway, we use SP3-integrated disks every time we reinstall (actually, we install every critical update, as well as .NET 4, available to XP). I've never experienced a problem with system instability or general odd-ness following a fresh XP SP3 install that couldn't be explained by failing/damaged hardware. We've done AMD, Intel, ATE, nVidia, Dell, HP, Acer, customer builds... you name, I've wiped the drive and re-installed XP with SP3 slipstreamed. Never once had a problem.