1.refuse it when it installs if you get the choice.
2.change your automatic update settings.
start|control panel|security center|Manage Security Settings for: Automatic updates| click Notify me but don't automatically download or install them.
click OK.
close the windows you opened (red X in upper right corner)
3.when the update comes, opt out permamently
- double-click on the little yellow shield in the system tray.
- choose "custom install" and click OK or whatever to continue on. It then shows you what updates it plans to install with checkboxes next to them.
- uncheck the ones you don't want: Uncheck XP Service Pack 3 (it has a long name). click OK.
(note: I was unable to get an exact shot of this dialog, since I took care of it on all our machines already) - you will get a dialog box asking you if you don't want to be bothered about this update again. check the checkbox saying you don't want to be bothered again about this update & click OK.
You are done.
By the way, with SP3, you are better off downloading the cd ISO file from microsoft and installing it from that than waiting a week for BITS to finish dribbling the data down the wire its own slow computer-consuming way. it's huge.