I'm really not sure what you're talking about. Windows Update will work on any version of Windows XP. I can only assume you mean that Microsoft no longer supports anything prior to SP3, which I remember them saying, though I really don't have any idea what that means in practice (they've never seemed very good at "supporting" Windows in general).

And when I'm talking about Windows Update, I still count when you go through Windows Update and it insists you install SP3. That's still Windows Update working as it should.

I still regularly come across clients with Windows XP running SP2. I've never once had a problem simply running Windows Update and installing random patches and SP3.

I would think that, in particular, a brand new computer with SP2 would be especially easy to update. Yes, it's going to take a very long time and require many reboots, but I rarely run into update installation problems on brand new Windows installs. Though YMMV.