Installation of SP2 fails because of insufficient free hard disk space.

Microsoft says that the minimum system requirements for installing SP2 are a 233MHz processor, 64MB Ram and 1.8GB free hard disk. In reality, it depends on how SP2 is installed. When installing from CD, about 1.4GB is needed, made up of the following: around 500MB of data is copied from the CD to the Windows folder under the description ServicePackFiles. On top of this is the 495MB, which SP2 takes up itself. In addition, 260MB is needed for the installation and 200MB for the uninstall files. Less space is needed for for an online update or a network installation – only those patches that have not yet been installed are copied over, which reduces the files in total to about 100MB in size.

Some storage space can be freed by using the defragmentation and Disk Cleanup tools. If that doesn’t do the trick and you have multiple partitions on your hard drive, then you can use a partitioning program such as Symantec Partition Magic or Paragon Partition Manager to increase the system partition size.

support.microsoft.com/kb/837783