Heh, I found out my WinXP does include SP2, so I should have no problems then?
Nick, when you say SATA is set to IDE mode, do you mean startup sequence is set to IDE?
Nope, at least not if you're referring to "IDE" being set as the first device in the boot order.
Depending on your mobo, somewhere in your BIOS (probably under "IDE configuration" or something similar), you might find various options as to how the southbridge actually configures SATA drives - as plain IDE, as RAID, or with AHCI enabled. RAID is self-explanatory, AHCI gives you advanced SATA2 features such as native command queuing, hotswapping and the full 300MB/sec burst transfer speeds. XP's own inbuilt drivers will only find the drive if it's configured as IDE - there's a way of enabling AHCI in an existing XP installation at a later stage, but it's a bit fiddly. You'd be better off using the third-party SATA drivers during the setup procedure if you want to install Windows on an AHCI-configured drive.
Unless you want to install Windows to a RAID array, plain IDE should probably be good enough, and is usually the default configuration - there might theoretically be some performance penalty compared to AHCI in some circumstances, but I doubt if it's anything you'd ever notice in practice, at least with currently available drives.
If your mobo has a less advanced southbridge and doesn't give you these options you should be good to go without any further ado anyway...