If you only have one browser installed perhaps IE doesn't need to check, maybe this is by design?
Checking that box specifies whether you want Internet Explorer to remain your default Internet browser, *****even if you install additional Internet browsing software.*****
When this check box is selected, each time Internet Explorer starts it checks to make sure it is still registered as the default Internet browser. *****If another program is registered as the default browser*****, Internet Explorer asks whether you want to restore Internet Explorer as your default browser.
This is the main job of the SFC /Scannow command -
"If System File Checker discovers that a protected file has been overwritten, it retrieves the correct version of the file from the cache folder (%Systemroot%\System32\Dllcache) or the Windows installation source files, and then replaces the incorrect file. System File Checker also checks and repopulates the cache folder."
It should not replace new windows files with old versions of them from the XP CD as it retrieves the version initially from the Dllcache which would have the updated version already and only adds missing files in the Dllcache from the CD.
Nevertheless it is a good idea to slipstream SP2 into the original XP CD, for SFC purposes, and repairing XP.
Description of the Windows System File Checker Tool (Q310747)
Slipstream Service Packs
thread779-900263