The "test first" strategy suggested by MS is corporate CYA (cover your ****). In real life, you rarely have the hardware or the time to set up a test environment.
It boils down to deciding whether you have more to fear from the security vulnerabilities and bugs covered in the SP or from buggy MS service packs.
Unless you have absolutely no choice, (like a patch or hotfix available only through the SP) give the new service packs a couple weeks to circulate in the field before deploying it. Watch boards like this one closely and try to get feedback from early SP deployers running similar hardware and software.
When implementing a SP (or even a smaller, less complicated hotfix), follow pre-deployment recommendations religously. Assume that anything that can go wrong will. Test your backup tape drives; make sure you can restore data from them. Run a full backup, including system state data. Update ERDs. Read and re-read the documentation and, if possible, select deployment options that give you the ability to uninstall the SP or patch. Then plan to do the deployment when you have time to recover if the installation goes bad.
We have 7 W2K servers and about a dozen W2KPro workstations on SP3. No hitches so far. But do take this seriously.