This is what i found out when I googled the query:
Do NOT delete "C:\Windows\ServicePackFiles".
That file may be needed if you have problems later and sometimes for hardware installations.
Some who really need the space burn this file to CD, but if space is that important a larger or second hard drive is the better fix.
Source: *www3.telus.net/dandemar/spack.htm
OK, here is something more concrete, straight from the horse's mouth.
*support.microsoft.com/?kbid=290402
EDIT: This one specifies that its for Windows 2000. I guess you must be using XP. I will post a relevant link on that as soon as I get one. But reading the one provided will surely give you a rough idea about it.