It is not clear why KB835732 causes issues with some Win2k machines. (Note: there are no credible problem reports for Windows XP Professional).
Over 95% of Win2k clients do not report a problem. But your question is why the issue with some Win2k clients.
. It is not clear at the moment;
. It is a reproducable issue in certain Group Policy settings, noted above;
. There are some credible arguments that it is a video driver issue in some settings;
Install the security Hotfixes, with the exception of KB835732
If you administrate a number of essentially similar workstations, install, after a reboot, a test client. If it works, roll-out the Hotfix.
If your test workstation has the issues described earlier in this thread, wait for a little while.
Microsoft is fully aware that there can be Win2k issues with this particular Hotfix.
Best,
Bill Castner