This is a weird one.
We recently reinstalled Windows XP SP3 from an OEM disc on our laptop. It installed successfully and activated with no problem. We have installed all of our applications with no problem.
However, you can no manually access the Windows Update site via Internet Explorer (we manually upgraded it to IE8). It will do automatically updates every once in a while (yellow shield in system tray) however it will redirect us to KB2497281 saying we do not have SP3 installed. We clearly do have SP3 installed, as I have verified in the System Menu in the Control Panel. We followed all the guidelines in the KB, still no avail.