Hey,
I would try to expand the virtual memory to at least 512 and then try again. When runing this compressed update it must make an uncompressed copy of it in dynamic memory. It is temporary, but nessasary.
To increase your virtual memory...
1) right click "My Computer"
2) Select "properties"
3) Select the "Advanced" tab
4) Select "performance"
5) select change the "virtual memory"
6) set the memory to 384 - 768 (or something of the like)
7) close all and "reboot"
8) Try reinstalling the service pack
....Good Luck
-mike