It is still needed before you install Service Pack 3. The best method of installing SP3 is to go to the Windows Update website and download if from there. That is the best because it will scan your computer and see what other updates you need to install before it will even allow you to install SP3. There are downloading sites from Microsoft, which you can find by going to www.microsoft.com and in their search bar, type in: Windows XP SP3. However, if your computer is not ready for it, it may not install correctly, so it is best to use the Windows Updates website.
You can go there by opening your Start Menu and clicking on the icon that says "Windows Updates". That's the easy way. If you can't find that icon, you have to do it the harder way. Open Internet Explorer and type in windowsupdate.microsoft.com. That's all you need to type in... No www needed. However, when I tried to open it with FireFox, it told me that I could only download it with the latest version of Internet Explorer.
The first thing I would recommend when it opens is that you click on the button that says: Get Microsoft Update today! The difference is that "Windows Updates" only does what it says: It updates Windows--and Windows only. Microsoft Update updates ALL of your Microsoft products. If it doesn't say Get Microsoft today, then just look just above where it says "Welcome to Windows Update" and click where it says "Microsoft Update".
Once you are there, I would recommend that you use the "Custom" button, rather than the "Express" one. Then you are assured of getting all the updates--rather than just the "critical updates".
An overview of Service Pack 3 is located at http://www.microsoft.com/windows/products/windowsxp/sp3/default.mspx. You will note that if you click on the link "Steps to take before you install Windows XP SP3", you will find that step number 4 is to make a complete backup of your computer before installing a Service Pack. You need to have a good backup program for that. I use Acronis TrueImage Home Edition, which you can download directly from their website at www.acronis.com, but if you go to C/Net's www.download.com and type in "backup", then you can find other programs to choose from.