Service pack 3 can be removed from add/remove programs. You need to check the box at the top: "Show Updates", and you'll find it listed as Windows XP Service Pack 3.
But, having said that, the only possible conflict I can imagine between Firefox and IE8 is that IE8 thinks it's the default browser - I have both (as do most other Firefox users, I imagine) without conflicts.
You can make FF the default as follows:
Run FF
Click Tools/Options
On the General tab, check the box "Always check to see if Firefox is the default browser on startup"
Click Check Now