Maybe somebody can really give a good answer here. I have NOT installed this update because frankly I can find no good reason to do so, yet I see many folks leaping at the chance to do so and I don't understand why.
Here are my reasons NOT to install it, maybe others can give me good reasons to go ahead; I have "bolded" my reasons to question the need to install this....
Windows XP SP3 First Impressions
February 21, 2008, BEFORE SP3 was released;
...this pack of updates, which consists primarily of previously released fixes now bundled together for convenience. Meanwhile, the few new features delivered in SP3 are likely to go entirely unnoticed by most users.

Enhancements such as improved detection of so-called black hole routers (which silently drop packets during operation) is likely to please net admins, but will get little more than a shrug from all but the most die-hard end users.

Same goes for the newly integrated Network Access Protection and support for credentials security service providers, both of which exist mainly to enhance networking functionality with the forthcoming Windows Server 2008.
If you’re not an IT manager and you’ve been installing your Windows XP updates each week like a good dog, there are really only two features in XP SP3 worth worrying about: one good, the other questionable.

On the good side, Service Pack 3 updates the menu text in the security options control panel to make it more descriptive of the various options. This should make it easier for users to decide which settings to tweak and how. It’s an incredibly minor tweak, and one that’s easy to miss if you’re not looking very closely.

More dubious is the Windows Product Activation update, which makes the XP installation process more Vista-like. This means you’ll no longer be forced to input your Windows product activation key during installation (although you’ll still have to do so within 30 days or your OS will stop working).
However, it also means Windows XP will be tracking your hardware configuration in much the same way that Vista does, which could lead to your computer being disabled in the event that you change out fundamental components such as your motherboard or processor.
All things considered, Windows XP Service Pack 3 proves to be a fairly anticlimactic final release in the XP service pack line. It won’t blow up your computer, but it won’t make it very much better, either.

XP update throws some for a loop
May 12, 2008 AFTER the release;
Owners of some AMD-based computers are finding that the move to Windows XP Service Pack 3 has sent their systems into an endless reboot cycle.
"While the root cause of this issue is complex, it results from OEMs improperly placing a Windows XP image created for an for Intel-based computer onto machines with non-Intel chipsets," Microsoft said in a statement. "Microsoft issued guidance to OEMs advising them to only load Windows XP images onto like hardware in 2004."

The reboot cycle glitch is the latest hiccup for Microsoft with the service pack update. The company had to delay the release date of XP SP3 after discovering at the 11th hour an incompatibility with one of its own programs.
With that issue, customers running Microsoft's Dynamics Retail Management System could face data loss if they run that program in conjunction with SP3.
After delaying the release of XP SP3 because of the issue, Microsoft finally made the OS update available last week, after creating a filter to ensure that those running Dynamics RMS did not get offered XP SP3.
Windows XP Service Pack 3 Overview
May 6, 2008, when it was released;
Windows® XP Service Pack 3 (SP3) includes all previously released updates for the operating system. This update also includes a small number of new functionalities, which do not significantly change customers’ experience with the operating system.
System Requirements
  • Supported Operating Systems: Windows XP; Windows XP Home Edition ; Windows XP Home Edition N; Windows XP Media Center Edition; Windows XP Professional Edition ; Windows XP Professional N; Windows XP Service Pack 1; Windows XP Service Pack 2; Windows XP Starter Edition; Windows XP Tablet PC Edition
And Finally; Service Pack 3 and Internet Explorer

May 6, 2008;
Internet Explorer 6 Users

XPSP3 will continue to ship with IE6 and contains a roll-up of the latest security updates for IE6. If you are still running Internet Explorer 6, then XPSP3 will be offered to you via Windows Update as a high priority update. You can safely install XPSP3 and will have an updated version of IE6 with all your personal preferences, such as home pages and favorites, still intact.

Internet Explorer 7 Users
If you are currently running IE7 on XPSP2, Windows Update will offer you XPSP3 as a high priority update. If you choose to install XPSP3, Internet Explorer 7 will remain on your system after the install is complete. Your preferences will be retained. However, you will no longer be able to uninstall IE7. If you go to Control Panel->Add/Remove Programs, the Remove option will be grayed out.

This behavior is by design and here is why. When we install IE7 on Windows XP SP2, we backup the existing IE6 files in an uninstall directory. Those IE6 files are the ones that shipped on XPSP2 plus all the security updates you’ve installed while using IE6. Windows XP SP3 contains a newer version of the Internet Explorer 6 files. If you have XPSP3 on your system and uninstall IE7, your system would revert to the backed up (older) version of the IE6 files rather than the newer XPSP3 version. You would end up in a mixed file state in Windows where most files would be the upgraded XPSP3, except for the IE6 files restored when uninstalling IE7. This state is not supported and is very bug prone. To ensure a reliable user experience, we prevent this broken state by disabling the ability to uninstall Internet Explorer 7.

If you must uninstall IE7 after you have upgraded to XPSP3, then you have to first uninstall XPSP3, and then uninstall IE7. After this series of uninstalls, you will be reverted back to a XPSP2, and a stable version of IE6, so feel free to upgrade to XPSP3 again.

If you install IE7 after you install XPSP3, then you will be able to uninstall IE7 at any point and be reverted to the newer IE6 version that ships in XPSP3. The restriction on uninstalling only applies to when you install a Windows Service Pack release on top of a standalone IE release.

Keeping this in mind, you might want to uninstall IE7, upgrade to XPSP3 and then install IE7 again so you can uninstall IE7 in the future if need be."
I have truly searched high and low for good reasons to install SP3 but links like those above are all I have been able to find. Which, for me anyway, do not give me any good reason to update my system to SP3.
Does anyone have a really good reason to do so?
Judy