Woo hoo - fixed!!!!! Here's how I did it:
1) Phoned Microsoft (only open 9am - 5pm in New Zealand - slack!!)
2) Only on hold for 30 secs (a record?)
3) Passed to a Tech who knew what he was doing...
4) Switched computer on and let it proceed to the "Loading deivce drivers"
5) MS Tech instructed me to do the following:
a) Press Shift + F10
b) Type: taskmgr at the prompt
c) Type: control appwiz (with a space in between the words)
6) This brought up the Add / Remove Control Panel.
From there, I was able to uninstall the McAfee Virus Scan software. I then closed all the open windows, to find that the installation was proceeding. The installation continued successfully, and I was able to do a "proper" SP2 upgrade using a SP2 upgrade CD from MS.

So, there you have it sports fans: a back-door to resurrect a seemingly "dead" system. I am now very much the "happy chappie"!!