Hello forkcamper,
If I understand correctly, you have a copy of XP already installed and you are attempting to change the product key. (please correct me if I have misread)
There are two supported ways of changing a Product Key in XP.
1) The Product Key Update Tool (
http://www.microsoft.com/genuine/selfhelp/XPPkuinst.aspx)
2) Reinstall XP using the new key.
Note: if the Product Update tool is unable to change the product key (for any reason) then the only option is to reinstall using the new key.
Note: Automatic Update issues are off topic for the XP Validation forum.
Thank you,
Darin MS