hey sean, try tossing your "pref" file:

the preference file (Prefs.psp) is located in the Documents and Settings/[user profile]/Application Data/Adobe/Photoshop/[version]/Adobe Photoshop [version] Settings folder...

if you want, you can force a new preference file to be created by holding down the Shift-Ctrl-Alt as you launch Photoshop.

a lot of time whenever PS gets all WONKY, tossing the "prefs" file fixes it up (and it's a lot less painful than "re-installing" PS)

as for the XPSP2 being the culprit... can't say one way or the other... (too chicken to upgrade myself yet ;)) maybe others have more input

:)
retrocity