Actually if you have a hacked copy it simply tells you you cannot install the service pack and exits, it definately doesn't screw up your computer. I have already run into this issue on several PCs, here's some info for ya:
Since the release of Windows XP Professional, Microsoft has discovered that the vast majority of illegitimate copies in use are using a small handful of leaked "corporate" keys. In an effort to thwart these illegitimate users, Windows XP Service Pack 1 (and possibly all future updates) will not install on systems using these keys, and it is unclear what additional steps Microsoft may take in the future. Microsoft claims that legitimate licensed users of XP Professional should be unaffected, however there are a number of different ways one of these leaked keys can find it's way into an otherwise legal environment and cause serious deployment issues. (When a legitimate corporate key is not at hand during an installation process, it's a common practice for some administrators to simple search the web for a valid key.) Here's how to check if your systems are using a leaked key, and how to change the product activation key if they are.
How to find your your Product Key
During the installation of Windows XP Professional, you are prompted to enter a 25 digit Windows XP Product Key, which Windows XP promptly converts it into the system's product ID. Because of security concerns about piracy, Microsoft does not provide a tool that allows you to view the Product Key (or CD Key) that was used to install the operating system. Luckily, a clever guy named Serge Kandakov has created a simple little tool called ViewKeyXP that gets around this problem and actually displays the Product Key used in the installation.
http://www.webtree.ca/windowsxp/tools/ViewKeyXP.exe
The primary code used in the majority of pirated XP copies is:
FCKGW RHQQ2 YXRKT 8TG6W (last group omitted - DogMeat)
This code has been commonly referred to as "DevilsOwn" code, by the hacker who distributed it (along with an ISO CD image of Windows XP) on Usenet warez groups. This is the primary key code that is expected to be blocked by Service Pack 1
Other codes that have been leaked on the web:
(List of codes omitted since they could be misused - DogMeat)
How to change your Product ID in Windows XP
If the product key used in your workstation installations matches the leaked keys above, you may need to change the key in order to install Windows XP service pack 1, and to make sure your environment is legal. You could completely re-install Windows XP Professional or you can try the method below. (Please backup your system before attempting this.) This workaround is only for the corporate editions of Windows XP Professional using a compromised or illegitimate key. Windows XP Home Edition and retail versions of XP Professional should not be affected by Service Pack 1. Although this procedure may work with other versions of XP, we have only tested it on the corporate edition (volume license version) of Windows XP Professional.
(Information on changing your key omitted since it could be misused - DogMeat)
Additional Thoughts...
We are hoping that Microsoft provides a tool for checking machine product ID's on an Enterprise level (either via SMS or another reporting tool) prior to the release of Windows XP SP1. Perhaps they'll see their way to making a tool that can verify and change the Product Keys remotely as well. For now, Microsoft has contacted the corporate customers whose keys have leaked onto the web, but has debunked stories that it is changing volume license keys, or the algorithm used to create them.
Text taken from LabMice.net.
http://www.labmice.net/WindowsXP/articles/changeID.htm
Don't bother going there looking to fill in the blanks tho, now that page only says "This article has been removed from our site by the request of Microsoft Corporation."