Just bite the bullet and reinstall your OS. That's the ONLY way to see SP2 in it's PROPER state. Like we've both said, installing it over an installation that already has it's own little quirks, is going to give you dissapointing results. Do not write it off untill you do a slipstream, Things will be better.
Also, remember when I posted about the new X-Fi cards coming out? Nearly EVERYONE who still uses an Audigy 1 will have problems with SP2 and drivers. The driver set created by Creative Labs plain sucks. You'll have to install the drivers manually, meaning before your install program closes, go rooting through the temp directory and pull the extracted driver files away from the temp folder, then run the CTZAPXX app in one of the folders there, and choose Driver Installation. Reboot, and use CTPanel to control the card from there. If you get fed up, consider getting an X-Fi, the basic model, as it's much better than the audgy 1, 2, whatever card before it, the X-Fi is much better. The drivers are much better than the Audigy drivers as well, I believe there's been a few updates, and they all work fine.
@ Kosh
If you're absolutely convinced that your drive is dead, then get a livecd image of a various linux distro and boot into it using the faulty drive. That'll definetly put your drive through it's paces and should tell you if the drive is failing. If you can't boot from a burned CD, then your drive is failing. And, no, SP2 will not cause your optical drive to just go belly up, it could be anything. Age, faulty components, or just plain being used till it's wore out. If the drive is a combo drive, it'll go out way faster than a normal CD reader drive. I have an old mitsumi 4X that eats discs due to a goofed up retainer, but it still runs and reads. Every single combo or DVD drive I've owned except for the two in my case right now has died in the past.