I had the same (or similar) problem, which caused me loads of anxiety over these past few days.
I have a Dell Dimension 5150 PC.
My symptoms: After Windows XP SP3 update, I experienced the same reboot loop. After disconnecting the keyboard/mouse, Windows loaded just fine. Plugging in a Wacom Tablet caused the same problem again. Plugging in the Printer: ditto. Not so with my external Hardrive. But without a keyboard or mouse, there is little you can do. So I took the PC tower to a local service tech (Dell Support wanted to reload the OS, but that would have ditched my files).
Service Tech at Computer Trends was able to fix the problem. I received my PC back this afternoon.
Here are his notes:
SYSTEM DID NOT UPDATE TO SP3 PROPERLY. MANUALLY COPIED USB FILES INTO %SYSTEMROOT%\SYSTEM32 FROM SERVICE PACK. SYSTEM NOW BOOTS WITHOUT BLUE SCREEN. ISSUE RESOLVED.
So, unless you know how to do that, don't screw around with it. Take it to a Service Technician. It cost me $ 50.-- plus tax.
Cheers and good luck