For his Compaq, it did not accept his key code when attempting to activate it over the internet and, when attempting to activate it using the "telephone" method and going through the question/answer and entry of the long "activation code" process, it ultimately returned with a message that, something to the effect, "our records do not show that this is a valid Microsoft product" and recommended that it be returned to the retailer where it was purchased.
"A plot by Microsoft to p*$$ off XP-users", I thought.
The answer in both cases was to ensure auto-update/auto install was turned on, then leave the PC online for a few hours.
My computers are on a wireless home network and to access the internet (for the purpose of activation), the connection between the computer and the wirless router has to first be "set up".
When attempting to run the setup software for the router without SP3 installed, a message appears saying that, in order to run the setup software, the computer must have SP3 installed.
As for my Dell Dimension 4700, there have been a number of "reinstalls" using the disk from my old "8400" without problem.
BTW, there was another part of your question which I failed to answer.
I have disks for SP1, SP2 and SP3 which I purchased directly from Microsoft.
Both SP2 and SP3 were installed on both computers as part of the XP installations. IMO, you should have attempted it as soon as the install with the primary XP disc was complete. But since you mentioned that "SP2 and SP3 were installed on both computers as part of the XP installations" it seems that you may have waited until after you installed the SP's. forgive if I missed something, or got confused somewhere...1.
Instead,, when using the "telephone" method for activation and going through all of Microsoft's "hoops", it finally comes back and says that it is not a valid Microsoft product (implying that it is counterfeit) and that we should return it to the retailer.
This after using it previously for two successful earlier installs.
The problem on my Dell is when attempting to download the "Windows Updates".