For some dumb reason, you can't slipstream a SP into an XP install image if you're running under Vista. It will appear to work but later on during installation when you come to enter your license key it'll complain and say that it is not a valid key.

The only way to do it is to slipstream when running under XP.

On further investigation, it seems to only affect volume licensing versions of XP and you can make it work by running the slipstream update app in XP compat mode.