Here's what I did from scratch.
I started by installing XP Pro with SP2 on the Boot Camp partition using Boot Camp Assistant.
I then installed the Boot Camp 2.0 drivers from the Leopard DVD.
Then using Apple software update I installed Boot Camp 2.1 drivers.
I then rebooted into Mac OS X and set up the Boot Camp partition to work as a VM in Parallels.
After a few more 3rd party software installs I rebooted the Mac from the XP partition again to install SP 3.
After installing SP 3 I ran Windows Update and installed the remaining updates that were applicable to my XP setup.
After this I rebooted into Mac OS X and when I opened the Parallels XP Boot Camp VM it was at this point that I had the endless rebooting loop at startup problem.
The solution was to follow the direction uotony describes in steps 6 and 7.
I then restarted the XP VM and reinstalled Parallels tools and all is working fine now.
So, in answer to your question NoAnxiety, it was not updating to Boot Camp 2.1 or uninstalling SP3 that fixed the problem. It was cleaning Parallels off of the Boot Camp partition / VM then reinstalling it so it could deal with the changes of updating to SP3 that fixed the problem.
If I had done all my updates while booted from the XP Boot Camp partition, both the Boot Camp 2.1 update from Apple and the Windows updates (SP3) from MS, before setting up the Boot Camp partition as a Parallels VM I would have never had the problem.
The kb John linked to gives a more detailed / technical explanation.
Hope that makes sense and helps.
Last edited: Jul 17, 2008