"Recent press reports indicating Windows XP Service Pack 2 will install on pirated or illegal copies of Windows XP are not entirely true," said a Microsoft spokesperson. "Instead, prior to installing, SP2 will check the OS' product ID [PID] against a list of known pirated PIDs. If a PID is found to be invalid, SP2 will not install." This behavior is essentially similar to that of Windows XP SP1.
This come as a surprise because of previous reports quoting Microsoft employees, in the other hand, I can already hear the voices of many blaming Microsoft for this decision.
To round things up... SP2 being offered even to pirate copies would have shown a lot of sensitivity from the software giant (who holds a large and wealthy bank account, btw) however we should admit that they are not doing anything wrong in protecting its flagship product from pirates in a large scale... aside from any issues you may have with MS, it's common business practice IMO.