Why wouldn't it be? nLite has been updated for SP3.I don't think nliting/slipstreaming is possible? Someone said there is a 500MB and 300MB version, but I can't find the former. Just use the 300MB one.
This is on a fresh install of XP where I install from an actual SP2 disc and then use the SP3 update cd image from Microsoft to update to SP3.
Office 2007 installs fine, but the two problems i've noticed:
Windows Live *anything* won't install since the Windows Live Installer just breaks itself. It happens to everyone I think.
.Net doesn't get installed and then doesn't show up in Microsoft Update. Very strange and annoying since I need it for Paint.NET