Slipstreaming (integrating) a service pack does not do anything to your current OS, it only integrates a SP into a Windows installation CD, meaning that if you have a Windows installation CD, such as XP that doesn't have any SP on it, then slipstreaming SP2 into it will give you a new CD that is Windows XP SP2. Thus, whenever you do a new installation with that CD instead of the old one, you don't have to download the huge SP2 update (or any previous patches), it's already integrated into the system/CD. For this project (and BartPE), a Windows XP SP1 or higher CD is required.

I hope that helps. Autostreamer is the best program to use for this.