Nice and simple! I downloaded the SDK the other day and I have to say, it's beautifully simple. There are only about half a dozen classes, and the Application class has maybe five methods. You can grok the whole thing in 15 minutes and you're off and running. Whoever put this thing together did us devs a big favor ;)
Which processor and OS are you using?
Windows 7 Starter, Intel Atom N270.
Is there any ability to install SDK on WindowsXP SP2, or SP3 is mandatory?
You can install the SDK with SP2 however it is not supported.