The Windows Update site says that I need to download:
Microsoft .NET Framework 1.1 Service Pack 1
Is that the case? I'm asking because a) this update is two years old, and b) my machine is running Service Pack 2.

The Microsoft .NET Framework 1.1 Service Pack 1 is not related to XP SP2. It was just the Service Pack for .NET Framework 1.1. The latest version of .Net Framework is 2.0. I am surprised you do not see that listed although it might be in the custom (optional) section. Actually looking at the .NET Framework site I see they're into 3.0 now.

http://msdn.microsoft.com/netframework/

DJNafey posted this description of .NET Framework:

The Microsoft .NET Framework is indeed difficult to describe. It's a relatively new Microsoft technology that acts as a platform for programs to be developed on, keeping them separate from the Windows installation. The idea is that .NET applications are installed completely into their own directory and, therefore, shared files do not get put into the Windows directories and potentially conflict with other applications that want to use different versions of the same shared files. This makes applications much more stable. The latest production version is .NET Framework 1.1 but a lot of people are already trying out .NET Framework 2.0 Beta.

Essentially this is a developers tool and you would be advised if it was required for applications and web sites. ATI for example requires 2.0 for its latest drivers but they not only tell you this but bundle the download on their driver page.

Well, this is what had me stumped DJ. I went to Windows Update just to check, and was advised to download the latest version of the update software - or something like that. I did the download and was then given this message that the above was an essential download along with the Genuine Advantage Thingummy.
Anyway, I'll scratch it off the list. Thanks for the info.

It might be that Genuine Advantage requires .NET 1.1.

I've taken all the updates with no problems. But that's me

Again if it were a required base for some other program you would then need it and it would be clearly pointed out.

For example if Genuine Advantage requires it then you would need it in order to use Genuine Advantage etc.

Well, no problems here either in that respect. Maybe Microsoft are just trying to preserve their reputation for being difficult sods - I mean, leaders in technology.