If you are doing a format, its never really a gr8 idea to use the recovery disk.
Its best to install a fresh copy of windows onto the hard drive, doing a full complete format in NTFS file format.

No need to do all the updates before service pack 2. As service pack 2 will detect what updates you need and just do it all in the one go. Its best like said before
Replace your Service Pack 2 Installer and start fresh, as there could be corruption in the installer.