SP2 can cause a few systems serious problems during or after installation.
In a very, very few cases systems will be rendered unable to boot to
windows. This is rare. By creating a full system backup you can easily
revert back to a functional OS in the event that SP2 isn't successful.
Which, once again, is rare. It is not necessary to make a full system backup
prior to upgrading but you should backup important data. It is always
prudent to make backups especially before upgrading. However if you decide
to create a full system backup then you need to use third party software.
The backup program that ships with XP is essentially useless for doing full
system backups. There are a number of good programs available for this.
Symantec Ghost and Acronis TrueImage are common programs that can create
full system backups, or image files, directly to CD, DVD, USB or network
drives.