nbazaz, Can you please refer to this KB article and check whether any of the situations is like yours ?
How to troubleshoot Windows Update, Microsoft Update, and Windows Server Update Services installation issues
Also can you check what your windows update log files says ?
for this start->run
and in open box type
%windir%\Windowsupdate.log
and click ok.
your log file will open in notepad, check for error messages, what you are getting.
If you want some details regarding reading log files check this How to read the Windowsupdate.log file
Also is there any 3rd party Firewall running or i have also read that programs like Spybot S&D also causes some conflicts with updates downloads. Pl. check that. I hope your XP is uptodate atleast with SP2 , as you have posted.