“There is not enough disk space on C:\WINDOWS\$NtServicePackUninstall$ to install Service Pack 3 Setup requires an additional 4 megabytes of free space or if you also want to archive the files for uninstallation,Setup requires 4 additional megabytes of free space. Free additional space on your hard disk and then try again.”

This happens because iMac uses EFI file format which Windows XP does not support. To workaround this problem, add a registry key as follows:

1. Click Start – Run – Type “regedit” and press enter.

2. Navigate to

[HKEY_LOCAL_MACHINE\Software\Microsoft\Windows\CurrentVersion\Setup]
 
HKEY_LOCAL_MACHINE
    \Software
         \Microsoft
              \Windows
                  \CurrentVersion
                       \Setup
                      
3. In the right pane, Right-click and select New – String value

4. Name it as “BootDir” and set its value to “C:\”

This should help. Try installing SP3 and should work fine.