Service packs are primarily designed for use in large installations or by computer makers. You don't have to go through a million download-install-reboot sessions while windows update does it's thing when there's a service pack - you do it once and it takes care of a lot of bugs. One can "slipstream" bug fixes into the installation procedure so that when one is installing a thousand corporate desktops you don't have to use windows update at all - the installation includes the bug fixes. Slipstreaming a service pack is much easier, though, and when MS releases a service pack they start including it as part of their default install (ie, they slipstream it for installers). Further, a service pack "codifies" a lot of fixes and enhancements as part of the official OS distribution. A lot of bugs and other fixes are really optional, and in many cases IT departments won't install them until they are thoroughly tested. A service pack gives them some degree of confidence that the bug fixes included are tested more than most 0-day big fixes.
-Adam
