Found this notice on the "List of Fixes" for XP-SP2:
"This article lists the problems that are fixed in Microsoft Windows XP Service Pack 2 (SP2). Service packs are cumulative. This means that the problems that are fixed in a service pack are also fixed in later service packs. For example, Windows XP SP2 contains all the fixes that are included in Windows XP Service Pack 1 (SP1). You do not have to install an earlier service pack before you install Windows XP SP2."
http://support.microsoft.com/default.aspx?scid=kb;EN-US;811113
Interestingly, Microsoft recommends installing all previous updates prior to installing SP 2 on an article about installing SP2!
Check the readme, FAQ, or list of fixes article for the latest service packs to verify that all prior fixes are included in the newest version.
I have come across situations where you do need to install updates in order.
This has been mainly with other applications.
However, installing some Windows Updates will result in the need for additional updates.
Chas