When you do a reinstall without formatting, the infected files are still there, and the infected registry entries are still there, so no. You have to start fresh, and do a thorough reformat. The Welchia worm infection that you have would have been stopped by updates.
The best way to reformat has probably already been covered here, but quick and dirty:
1. Create a boot floppy (make sure it has a CD-rom driver of some sort).
2. Download an AV, firewall, and some other protection software.
3. Physically dosconnect the computer from the net (important).
4. Wipe out the partitions, reformat (full reformat).
5. Reinstall the OS, AV, firewall, etc. (At least make sure the windows firewall is on).
6. Go immediately to get all of your updates.
If you try to install SP2 with all the junk you have on your system, it will not install properly, and you will be worse off than you are now. Other thanthat, I don't know why you would be haning PnP problems. I have not experienced the issues that you are describing. The simple fact is that your system is incredibly vulnerable without the updates. They don't call them critical updates for nothing.