The three main reasons for wanting SP3 are security, security, and security.

Service packs traditionally have been little more than giant wadded up balls of patches. It wasn't really until XP SP2 that MS added some additional features to any of them.

For the most part though, service packs are handy ways of applying patches to a system en masse. Instead of downloading 100+ updates from Windows Update, you get this one giant collection. A lot of times, service packs will include patches for things that are never distributed otherwise. They only exist in the service pack, so even if someone installs every update on an SP1 system, there are still plenty of flaws that were only fixed in SP2 that they are vulnerable to.