FWIW, I have never experienced a single incompatibility with any WinXP service pack or update.
I have 3 desktops and 2 laptops on XP at home, 150 desktops administered at work.
It's been a very long time, WinNT 4 days, since I've seen anything break due to a Windows update or SP.
If you are just in a strictly business environment, that is understandable. However, in the world of specialty software (tied to machines) the path of “progress” is slower and considerably more expensive. As an example the multihead embroidery machines I digitize for still use 720K formatted floppies. Which involves some creative work-arounds since the advent of 1.44 disks and then XP.
On the other hand my other work (Photoshop, Illustrator, Corel) requires being able to do the latest & greatest and having a machine stuck in time is quite a drawback.
Just because you haven't seen them doesn't mean that they don't exist.
More importantly, since you haven't seen them you are unprepared to deal with them when they do finally show up.
Because problems with Windows Service Packs are a reality for thousands and thousands of users.
The Dark Side of Windows XP Service Pack 2
A university had to put up a web site to deal with XP SP2 problems.
Scroll down to "Known Bugs and Issuess"
Installing Windows XP Service Pack 2 can make your PC LESS secure.
Windows XP SP3 breaks Pagemager.
Windows XP SP2 disables FTP server.
Windows XP SP3: Beware the service pack!
Vista Service Pack Poses Some Pesky Problems
It's not limited to just Windows service packs either...
Office XP Service Pack 3 problems bite users.
In fact, service pack problems are so widespread that Microsoft even built a tool to stop them from installing.
Which they now say they're going to disable, because they know better than the people actually running the machines.