After 12 hours last weekend reading this thread and many others, I was able to discover what has worked for me on 3 different occasions in the last week. I figured its time to GIVE BACK for all the times I've taken info to help with other problems.
So, I took notes through my last install and am presenting them to you for a smoooooooooth installation.
Windows XP installation
Unplug any network, Ethernet connection from the computer you’re installing XP on.
Install XP SP3 WITHOUT turning on automatic updates. (this is usually toward the end of the installation. Don’t worry if you miss it or it doesn’t pop up, we’ll turn it off in the next step.
After XP is installed, go to UPDATES in Control Panel and make sure to check the “Turn off Automatic Updates” button.
Plug in Internet connection
Next install this update. http://www.microsoft...s.aspx?id=40612 This update is for XP installing IE6 which is most common with XP SP3. RESTART MACHINE
After installing the above update go back to CONTROL PANEL and open up UPDATES. Now check the button that says “Notify me but don’t automatically download or install them.” Click “APPLY” and “OK” and sit back and wait.
In about 1 to 5 minutes you’ll see you first update bubble saying. “updates are ready for your computer? This is typically one single update called “Package Installer” and helps facilitate the rest of the updates. Click on the bubble and a window opens in the middles of the screen. Now click the “download” button and wait about 1 to 5 minutes (depending on your internet connection speed.) And a new bubble pops up stating “updates are ready for your computer” again.
Click the bubble and this time click “INSTALL” on the window that opened up. The window will resume to bubble size giving you the option to click on it which will allows you to watch the update install. This is just personal preference. After this single update install. Click the close button and wait once again. WOOHOO!
Next on the list will be the next round of updates but you do NOT want to download all these updates. There is one update you MUST uncheck titled “Windows Genuine Advantage” which is usually second from the bottom of the list. Scroll to the bottom and uncheck this update and then click the download button. After you click the download button, another screen will pop up and give you the option to make sure window doesn’t bother you with this update again. Be sure to check that box and then click OK. Then once again click the download button.
This batch of updates (about 126) will take much longer so sit back and give it a about 15 to 20 minutes. Once again depending on your connection speed. If you want to hover your mouse over the yellow update icon down in the taskbar, it will vaguely show you how your process is going. It's not always accurate so don’t count on it but it will give you a relative reading.
After the downloads are complete, you’ll see the update bubble pop up now asking for you to INSTALL the updates. Click the bubble and follow the prompts. Make the update window big again by clicking on the update bubble. Sit back and watch these updates install over the next 15 to 30 minutes. (Depending on the speed of your processor)
After all update are INSTALLED, click RESTART NOW and wait for computer to restart.
Next…go to CONTROL PANEL and click on the “WINDOWS UPDATE “ link on the left hand side. IE will ask you some final question to install IE8 so go ahead and answer these.
Updates will now go and find WGA which should be good to download and install. Let that update do its thing and keep going to install the last few updates.
OPTION: You can leave the update setting as is, or change them to your desired setting
BTW…I’ve built three XP machines in this exact way in the last three weeks.