Modem problems since downloading SP1

On 11/1, I download the SP1 for XP and a patch from HP required for compatibility with SP1.
Since then, my modem has been all messed up.

Fax service no longer works.

When I try to use my dial-up either for mail or Internet, I get Generic Host Services has encountered an error …. and mentions Svchost.exe. It then throws me off line. If I use my task manager, I see that Svchost.exe is running 4 times. One takes 20,000k of memory.
If I end that process (3 tries) and then check email or go online, everything works fine, but I can’t disconnect without rebooting.

One more thing, I have a peer to peer home network. 2 computers running Home XP, 1 running Win98SE.

I’ve already tried updating the modem driver. That result wasno connection at all so I rolled it back.

Suggestions?