Ran into the following link over at blackviper's forum
http://blogs.msdn.com/ie/archive/2008/0 ... xpsp3.aspx
It's a blog written by the Deployment Program Manager for IE8 at MS. MS is not supporting slipstreaming IE7 on XPSP3. Also, IE7 can not be uninstalled after XP3 is installed. XP3 has to be installed first, then IE7 if you ever want to take out IE7.
I'm guessing that these things effect the problem we're having installing the KB947864 on our slipstreamed images. Down in the comments this link is also referred to explaining that you can't do a repair install on a XP system with IE7 installed.
I understand that there are many companies that still use IE6 and don't want to move to IE7, but it certainly seems that IE6 is tied deeper into XP than I thought it was. Gives credence to all the conspiracy buffs, doesn't it?
Well, though we now know that things will work fine if we just run the standalone installer of IE7 on the slipstreamed SP3, it would be nice if we could figure out how to come up with a way to create an install disc with everything on it that will silently install and have everything working with no problems on first boot. I can always dream.
Cheers and regards.
Edit: I just noticed that jamesdean referenced this exact same blog back on May 5 above in this very same topic. Very sorry I didn't give him credit for already pointing this out to us. Just shows I sometimes try to read way too many forums way too late at night and sometimes get them all jumbled up and forget where/if I've already read something or commented on it. Sorry again.