Well...to do a repair install, certain conditions must be met. First and foremost, these procedures do NOT apply to recovery/restore CDs...they are written developed to be implemented by a user possessing a valid license to install/use a given edition of XP and having access to a Microsoft Genuine Windws XP CD.
a. The CD used for the repair install must reflect the same SP as the O/S. If you have SP3 installed on your system, SP3 must be included in the CD used for the repair effort.
b. The CD must reflect the same version of XP as is installed. Cannot use a Pro CD to repair XP Home or vice versa. Cannot use a Home CD to repair Media Center Edition versions. And so on...
c. To create an updated XP CD, it's pretty easy. There is a tool called nLite which makes it a "by the numbers" drill.
Slipstreaming Windows XP To Create a Bootable Windows XP CD or DVD - http://www.bleepingcomputer.com/tutorials/slipstreaming-windows-xp-to-create-bootable-cd/
nLite - Deployment Tool for Unattended Windows - Guide - http://www.nliteos.com/guide/index.html
How to Perform a Windows XP Repair Install - http://www.michaelstevenstech.com/XPrepairinstall.htm
<<Was reading other posts with issues about XP SP3...>>
I guess I'm wondering why you wrote that...I don't see any issues that you've outlined...which are related at all to installation of SP3.