Is that an SP1 or older pre-SP1 copy of XP? It wasn't long after SP2 first came out I simply grabbed a second OEM copy with it included to save the hassle. You should be able to simply install SP2 separately by saving a redistributable copy to the drive. Besides an MS developers link you can download the 266mb SP2 directly at
http://www.softpedia.com/get/System/...-SP2-RTM.shtml
An iso image is similar to a zip file in the sense that you can open it up to add or remove files from it at any time. But the problem may be something else there. Lately when attempting repair installs on two systems and then a full on one the drives themselves were found bad. Windows would lock then the repair followed by a regular full install attempt.
The drives there could see partitions deleted and files recovered when slaved. But try to get Windows running again or eventually deleting the primary on one to see another created? no way! One drive was more then 4yrs. old explaining wear + tear while the other was more recent. In other words it could be something besides the optical drive even or fribie contest you had going there.