I suggest just starting with the one that offers SP3. That should severely reduce the number of other updates that you have do to do individually.
There is much information about Windows Update, how it works, critical updates, etc...available by using Google.
Before you attempt to install SP3, I suggest that you take a look at the items discussed at the topic, Windows XP SP3 Information...available at the 1st page of the XP Forum.http://www.bleepingcomputer.com/forums/t/146857/windows-xp-service-pack-3-sp3-information/
FWIW: You do need SP1 installed in order to install SP3. You do not have to have SP2 installed, since it is included as part of SP3. http://www.winsupersite.com/faq/xp_sp3.asp
See 1st sentence of answer to 2d question.
Edited by hamluis, 26 September 2008 - 01:52 PM.