The machine has issues you need to resolve before considering SP2. SP2 is a two edged sword. It does contain many security fixes, but pre-existing conditions can transform a machine to a doorstop.

All I can offer is that you should eject all SPYWARE with Adaware, Spybot, Stinger and Hosuecall as well as read the Shutdown article for XP at http://www.aumha.org/articles.htm

Bob