I thought I would post a solution to someone who may need it and avoid the testing I had to do. I have some Dell Dimension e520 computers with XP SP2 installed. My normal procedure for new models is to fully update them, install my office applications, run SYSPREP, then make an image. That way when more of the same model come in, I can just image them up and finish the SYSPREP wizard.
However I ran across a problem after running SYSPREP. After reboot, an error "msoobe.exe - Application Error" would pop up just before the Wizard would start. It took me a lot of testing, rebooting, SYSPREP'ing, but I narrowed it down to one update. I put all the updates as of 12/6/2006 on with no problems, with the exception of Media Player 11 that was released 11/28/06. Once that one is installed, error happens and machine is HOSED. (Hardware or Software Error Detected).
Leaving MP11 of until after SYSPREP is run works fine. I'm assuming I wouldn't be able to make an image of the machine after that. I also got in some Dell Latitude 620 laptops and they didn't exhibit the issue. So it's some weird fluke with this particular machine. I just thought I would document the problem here and help others out.