Personally, I'd do SP2 first. Then if the worst comes to pass, you can just do the wireless setup in the process of rebuilding. But that's me, you can make an argument for either direction.
Whatever you do, put a few days inbetween the tasks, so if any problems crop up, it's easier to figure out which installation caused it.
I have a home network with the main computer running XP home SP1, a laptop with the same OS and two W 98 machines. Everything works perfectly. I will be installing a wireless access point soon and was wondering about installing SP 2 on the two XP machines. Should I do it before installing the wireless system? After? Never? I have read all I can about SP 2 and I am hoping to make the installation of SP 2 and the wireless system as painless as possible. Thanks in advance.