The only way to see if Kosh's SP2 debacle is true, is to revert to SP1 and see if it stops working. It's quite easy to blame a software upgrade to cause devices to stop working properly, when in all actuality, it probably failed near the same time the software upgrade was applied. I, for example, blamed DARC when they came out with Divx 6, causing it to make my audio cut out whenever I tried to play back any video in any video player. Turns out, it was Driver Cleaner 1.3 deleting a little more than it should have, when I did a driver upgrade at the same exact time as my Divx 6 install, which was the author's fault there with that version.
But if it reads stamped CD's, but not burned CD's, it's probably a drive failure. My old Yamaha drive did that same exact thing, stopped reading burned CD's, but still could limp through stamped discs. since your removable drive works, I highly doubt that it's SP2 causing your drive to fail. I mean, come on, Windows still uses the same I/O and internal operations to read your removable drive, as it does to read your internal drive. If SP2 broke your CDrom access, it'd probably do the same exact thing to every single drive you'd hook up to the machine, which would mean that either 1, your laptop has issues with SP2 as a whole, or 2, something has become corrupted in the OS and a reinstall is necessary at this point.
It's just plain silly to blame M$ and thier service packs causing so much trouble, when really, it's a simple and effective process IF DONE CORRECTLY. Windows is NOT Linux, so don't expect it to operate the same. And dont jump up and down and say "IT SHOULD BE LIKE LINUX DANGIT!" M$ had the right to make the OS as they saw fit, and yes, comparing it to other OS's, it's not as well designed, but you have to apply the updates correctly to see the full benefits, and stability that the new pack offers over older packs. Of course, there's no one correct way to apply updates, but as stated by Fury and I, slipstreaming is probably your best way to get this done. It's just so much easier to bash a big corporation and blame them for your problems. Oh well.