Maybe try redownloading SP2? Maybe yours is corrupt?

These few preliminary steps can ease SP2 installation:
 
Remove all mouse configuration and software (Mouseware, Intellimouse).
 
Choose debugging "none" in both Startup and recovery (right click My Computer, Advanced tab) and in DirectX Control Panel and Diagnostic.
 
Upgrade to DirectX 8.1. Move to VGA by uninstalling Video drivers.
 
No overclocking and check your ram timings as standard in the Bios.
 
Install SP2 and retrace steps.

I personally would only install service packs through fresh installs

I snapped up something about issues with mouse drivers too but I forgot where

I would suggest creating an integrated SP2 setup CD or directory and installing that. saves a hell lot of a trouble. and complexity.
Remeber more complex better chance of going wrong.
 
To make one extarct the SP2 with "-x" switch then goto
I386\UPDATE\update.exe
use the "-s:c:\wherew2kis\" switch to integrate it.
 
PS. I might wrong about the directory names or commands but not the switches check out the knowledgebase

Microsoft evidently has a patch for this error. Look here: http://support.microsoft.com/support/kb/articles/q294/6/90.asp?ID=294690

That last problems was to be solved by SP2 itself.
 
The installation problem may be tied to ACPI remaining enabled in the Bios and Windows being installed as Standard PC or just the reverse. A new OS installation could fail and an upgrade does not work because Windows 2000 uses a separate Hardware Abstraction Layer (HAL) for ACPI support located in a different Ntoskrnl.exe:
 
http://support.microsoft.com/support/kb/...amp;SPR=WIN2000
 
Microsoft offers this explanation in "How to Troubleshoot Windows 2000 Hardware Abstraction Layer Issues":
 
"WARNING: Note that you should not attempt to change from an ACPI HAL to a standard HAL or from a standard HAL to a ACPI HAL under any circumstances. Doing so will result in your computer not starting properly or at all.
 
This occurs because the Plug and Play device tree that would be currently loaded is for ACPI, and it does not get reconstructed or revert to a standard HAL Plug and Play device tree. Because of this (the device tree structures being drastically different), the system is unaware of any hardware changes after the computer restarts to include the location of the boot device."
 
 
In simple words: the hardware abstraction layer being different must use the different ntoskrnl.exe that is not provided on your hard disk.
Hence the error messages and the lockups.
 
http://support.microsoft.com/support/kb/articles/Q237/5/56.ASP

Quote:Windows 2000 SP 2 is grrrrrrreeeeeeeaaaaaaaatttttt!

If those don't work, you could try running the repair option off the Win2k cd.
Also, I agree with installing service packs with only after a fresh install, that way, if something does go wrong, you haven't lost that much time.

I had a lot of Service Pack 2 problems until I disabled Windows File Protection.
Neither of my parallel-port flatbed scanner drivers are 'certified' by Microsoft and if they are prevented from installing properly by Windows File Protection the Windows 'blue screen' happens every time I print with a parallel-port printer.
There is another thread on one of the ntcompatible.com bulletin boards that describe the required registry hack plus sfc.dll hex edit that has to be performed to disable Windows File Protection under Service Pack 2.

That's wierd, I never got any problems with SPs, maybe it's something that has to do with your hardware.....

Disabling the file protection is a bit f an overkill if you ask me and it points to a faulty/cracked etc. installation.
 
I have not seen any machine that had problems with SP except 2. One was HW the other corrupt kernel.