Apparently, Microsoft noticed a "compatibility issue" between the new update and one of its programs, Microsoft Dynamics Retail Management System. Windows Vista Service Pack 1 is affected by the same problem and Microsoft has halted its automatic distribution.

‘In the last few days, we have uncovered a compatibility issue between Microsoft Dynamics Retail Management System (RMS) and both Windows XP SP3 and Windows Vista Service Pack 1 (SP1). In order to make sure customers have the best possible experience, we have decided to delay releasing Windows XP Service Pack 3 (SP3) to the web,’ explained Chris Keroack, Release Manager on Microsoft’s TechNEt forum.

Mary Jo Foley reported that Microsoft plans to install a filtering system in order to prevent the distribution of both service packs to systems running Microsoft Dynamics RMS, a retail chain management program for small and midsize businesses.

Microsoft urged its client to not install either service pack until a patch will be issued.  However, the company did not say when the Windows XP Service Pack 3 will be released or when the promised patch will be made available.

Microsoft Dynamics RMS customers running Windows XP SP3 or Windows Vista SP1 are advised to contact Microsoft Customer Support Services for additional information, Microsoft added.