My experience on a number of different PCs is that it is absolutely fine when installed immediately after the basic XP CD is used, and before any application software is installed. I've found several problems, including not being able to use IE6 and Outlook Express, if it's installed on an existing build, after the application software is all in place.
At the end of the day my ADSL wireless router takes care of my firewall, though I also have the XP firewall switched on and also use Zone Alarm, just to be safe. It's worth installing SP2, but be ready to instigate some contingency operation just in case.