To install SP3 the system must be SP1 or better and the WGA crap must be recently updated or SP3 will not install properly.
Had this same problem until I found the right sequence. Go to Windows update to run the "priority" or "security" updates only. There will be 2. One is usually the Malware removal and the other is the WGA aggravator. Let them both run to completion and then run the SP3 install. I hate it also but I've found that SP3 does protect against some specific malware issues we've run into at work. Otherwise at home I run Debian Linux.
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