SP1 can be uninstalled through the add/remove programs. Any chance someone removed it by mistake?
It would be a stupid hack. If they were already into your computer far enough to uninstall SP1 they would have just left a worm to use to gain control. Then they could use your PC for malicious purposes.
Removing SP1 is too stupid to have been done by a hacker smart enough to get in.
hmm... https? didn't think M$ used a secure site for update ... ok checked .. they don't. I'm not sure what your problem is though ... could you have somehow deleted the files that update needs to know whats installed and whats not?