I've always just generated keys so I could continue using the "illegal" version of XP that does not require activation instead of my legit CD keys. If MS ever finds a way to block it with SP3 or something, I'll just install the normal way and deal with the hassels of activation but until then I'll save myself the headache (It confirms itself as Genuine on MS' "Is it Genuine?" test). Of course, generating working keys for SP2 was a pain, but no where near the pain that activation has caused me in my otehr XP Media Center Edition 2005 PC. I was only allowed to activate ONE TIME before it required me to call MS! After complaining to the guy on the phone, he probably went ahead and banned any future activations when I have YET to make my clean install, activate and Ghost (image) it.
Anyway, I encounter pirated copies of XP Pro all the time. Nearly every non-Dell/HP/Gateway XP Pro PC I work on has a pirated non-SP2 compatible key installed on the illegal "corporate" version of the OS. Rather than give the customer their PC back without being protected with SP2, I just use The Magical Jellybean Keyfinder or the reactivation registry hack to give it a generated SP2 compatible key and fully update it. These are NOT instructions for pirating the OS but rather guidelines that techs should follow when encountering them; The user nearly never knows that their OS is pirated in the first place and all this does is let them continue using it. You're not the crook and they're probably not the crook (If they can install a pirated OS, they probably don't need you). Also, an SP2 key can only be generated through lots of hard work, false positives and trial & error NONE of which I revealed here.