MS Excel and XP SP3

We noticed a problem yesterday regarding MS Excel, network documents and SP3. Here’s the scenario:

If person A opens 123.xls, person B should get a popup stating that it is already open, would they like to be Notified when it becomes available or would they like to view it as Read Only. But, if person B has XP SP3 installed, they get a message stating to the effect that the document does not exist.

We have done a bit of testing and it is definitely the SP3. If we unistall SP3, it reverts to the Notify/Read Only option.

Has anyone else come across this and if so, have you figured a fix?