So, I got SP3 working on my MCE 2005 install. Didn't have to format. I did have to remove SP3, then remove all the installs of .Net, WMP 11, Hotfixes and Rollups for MCE 2005 specifically. Then, reinstall SP3, then .Net versions 1.1, 2.0 and all related Service Packs for that and then the Rollup Updates for MCE 2005. Quite the PITA and should not have been necessary. But, that was the only way it would work.
Slipstreaming SP3 into Windows XP Media Center Edition 2005 is not supported.
Service Pack 3 does contain updates to the operating system components of Windows XP Media Center Edition (MCE) and Windows XP Tablet PC Edition, and security updates for .NET Framework version 1.0, which is included in these Windows XP SKUs. It does not include update rollups for the Windows Media Center application in Windows XP MCE 2005. SP3 also omits security updates for Windows Media Player 10, although the player is included in Windows XP MCE 2005.
Seems like they dropped the ball for MCE 2005 and maybe they ought to be more up front about what OS's SP3 actually works on.