.net 3.5 instalation failed

Doesn't say anything about .net 3.5 needing any XP service packs on the relevant Microsoft page, and if it did need SP3 you would get an error, something like "This version of Windows is not supported" when you executed the setup software.
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Try installing Microsoft .NET Framework 3.5 Service Pack 1 instead (it's a full, cumulative update):
http://www.microsoft.com/en-gb/download/details.aspx?id=22