I am pretty sure that .NET 3.5 sp1 can be installed on XP through windows update, but I need to know if it is an optional update, or an important update? I am doing some research to determine what needs to be included in an installer, and this bit of information has been suprisingly hard to find. I don't have an XP VM installed at the moment, or I would just look myself.
It's available on Windows Update but it's optional.