It would work if you find the XP version of all drivers you need. And, of course, the license key of that XP CD shouldn't be in use elsewhere, or it won't activate.
In fact, you can skip sp2 and go directly to sp3.
But many would prefer to go ahead to Windows 7 in stead of back to XP. Or stay with Vista if it has to be cheap.
I have a Gateway vista home edition machine sitting in the box. It is two years old. I found a disc sp1 not oem. Will it work if I install sp1 on that machine then update to sp2 and sp3? If so, is there any special steps to follow?