It's a plot to screw up your computer so much that you have no choice but to upgrade to Windows 7. But you'll need a more powerful computer to run the new OS, so you'll also have to buy a new computer. That's where the kickbacks from computer manufacturers to Microsoft come in.
IE 8 wouldn't be attempting to update to SP3--that's the responsibility of an app called "Windows Update" (or "Microsoft Update", if you've configured it to update other MSFT apps). True, you can launch Windows Update from IE, but IE won't do it on its own.
Go to the Windows Update app an configure it to your liking.
SP3 never did complete, so I cancelled it. Maybe some other day I'll try that again. I had MSIE v7 before this, now MSIE v8 seems to be OK, though. I can still find everything & at least I'm back online. An icon appears in the systray when there's an update available--there isn't one there now.
I wondered if Microsoft was plotting revenge against me because I didn't agree to one of its offers. Or if it was doing some kind of massive thing w/XP this weekend. My brother says he can't browse, too.
The system tray icon will appear whenever Windows Update checks and finds updates available. Again, you can configure the frequency of when it checks, or you can turn off automatic updates altogether--I would not recommend this.
But you'll need a more powerful computer to run the new OS, so you'll also have to buy a new computer.
I can build one for $400 (not including Windows 7) that will run Windows 7 Home Premium. Maybe even $300. System requirements aren't that high, and good hardware is dirt cheap right now.