Dan,
SP2 includes SP1 as well.
Q: Do I need to install Windows XP Service Pack 1 before installing the
Service Pack 2?
No, Windows XP Service Pack 2 includes Service Pack 1 and it's a direct
replacement for Windows XP Service Pack 1. Service packs are cumulative.
This means that the problems that are fixed in a service pack are also
fixed in later service packs. For example, Windows XP SP2 contains all
the fixes that are included in Windows XP Service Pack 1 (SP1). You do
not have to install an earlier service pack before you install Windows
XP SP2.
Similarly, you don't have to uninstall Windows XP Service Pack 1 before
installing Service Pack 2.
In short, you can do any the following:
1) Install SP2 directly in a base XP installation
-or-
2) Install SP2 directly with SP1 already installed in the system.
-or-
3) Create a slip-streamed XP CD (with SP2 and run a clean installation).
Follow the slipstream advice here:
http://www.helpwithwindows.com/WindowsXP/winxp-sp2-bootcd.html