Yes, I've used nLite for several slipstream installations.
The nLite application is gradually improving through new revisions. You get it
here, free.
Its author, nuhi, has also developed vLite for MS Vista.
There are support forums for both at
MSFN.
Yes, it's nice to capture all the MS updates since SP2 was released, and integrtate ("Slipstream") them into your original installation. nLIte does that with excellence. Overall installation then has a smaller footprint on your hard drive. As an alternative, Microsoft's website
gives instructions on how to slipstream all the MS hot fixes from the command line. nLite is better than that.
Whether that makes your resulting Windows installation work faster or not is debatable, controversial. There are claims both ways on that.
nLIte's other aspect is to let you set most of Windows XP's options to your liking prior to installation, and also to delete some of the stuff in Windows that you'll never use, that otherwise would just bloat your installation.
Finally, you can also use nLITe to integrtate drivers and all sorts of applications, so they are part of your original installation.
It is suggested that you experiment. Install nLite and also install one of the free virtual PCs, such as Microsoft Virtual PC 2007 (free). Try some slipstreaming yourself and install your results in your VM.
What to use your nLite on: Make a set of folders on your hard drive, copy your original Windows CD into one. Gather up all your drivers ((use a software tool to seek and list them all) and copy them into another folder, download one of the hot fix packs of the MS updates, and a few applications, say maybe OpenOffice, CCleaner, etc. into another folder. Then nLite it all together.
As you page your way through nLite, go slowly and be careful to look at all the tabs on each screen, it's easy to miss one. See how your result plays in your VM.
nLite is good but not perfect. There are still some kinks that nuhi has to work out. But in my own use, none of those are show stoppers.
