With Windows NT if you set up a distribution/installation point on a server to install Windows NT from, there was no way to integrate Windows NT Service Packs into the distribution point.  This meant you still had to install the Service Pack(s) after you installed Windows NT.

With Windows 2000, you can now integrate, or Slipstream, Service Packs into your Windows 2000
distribution point.  You can now have a distribution point with Windows 2000 and the latest Service
Pack all in one.  Note: These instructions also apply to Windows XP.

1.  Go to the Windows 2000 Service Packs site and download the latest Service pack for Windows 2000.
Go to the Windows XP Service Pack site for XP.

2.  On your server (or a Win2000 Pro PC) create a directory, say c:\win2ksp, and put the downloaded Service Pack file into it.  Since this is a compressed executable file, you will need to uncompress it or expand it.
Open a command prompt window, change to c:\win2ksp and type:

win2ksp3.exe /x c:\win2ksp

The above command is using the file name for Service Pack 3 - this will be different depending on the Service Pack.  The /x switch tells the Win2ksp3.exe file to expand it's contents without installing the Service Pack.
Once you run this command, the Service Pack files will be expanded to the c:\win2ksp directory.
You will end up with c:\win2ksp with an i386 subdirectory.  The i386 subdirectory has the Service Pack files in it.
Note:  Make sure you have enough space for all the files.  For SP3, the downloadable file is about 127MB in size.  Once you expand the file, you will use up about 270MB of hard drive space.  Make sure you have enough room to do this.

3.  Next, get your Windows 2000 CD, put it in your server and copy the entire contents to another directory on your server.  For this example we will use c:\win2kpro.  This directory will be your Distribution/Installation Point.  It is this directory, with the Windows 2000 Pro files, that will be updated with the Service Pack files.
Note: If you don't want to copy the entire contents of the CD to your server, just copy the i386 directory and the CDROM_XX.5 files.  The CDROM_XX.5 files are Identifier files necessary for the slipstreaming. 
Make sure the CDROM_XX.5 files go in the root of your distribution point, c:\win2kpro, not in
c:\win2kpro\i386.

WinXP Pro users : For Windows XP Pro, the Identifier files are named Win51IP and Win51.

4.  We now have a c:\win2kpro and a c:\win2ksp directory on our server (once again, you can do this on a Win2kPro PC if you want).  To slipstream the Service Pack into the Windows 2000 distribution point, open a command prompt window, change to the c:\win2ksp directory and type the following:

cd i386\update <enter>
update.exe -s:c:\win2kpro <enter>

The first line changes the directory to the c:\win2ksp\i386\update directory.  In this directory is a file called update.exe.  Update.exe is the file that kicks off the installation of the Service Pack.
The second line tells update.exe not to install the Service Pack, but instead slipstream or integrate the Service Pack files into the directory indicated... c:\win2kpro.  The slipstream command needs to be entered exactly as shown.  No extra spaces and make sure you put the colon after the -s switch.
Note: If your path has a space in it, you need to put the path in quotes, like this:

update.exe -s:"c:\windows 2000\win2kpro"

Once update.exe finishes (it only takes a couple of minutes at most), you will have a directory with the Windows 2000 Pro files and the latest Service Pack integrated into Windows 2000 Pro.
Note: You can do the same thing with Windows 2000 Server and Windows XP.

When subsequent Service Packs are released, you can just run update.exe into the same distribution point, and you will then have Windows 2000 Pro with the latest Service Pack.


Notes about Integrated Installs

You cannot upgrade a Windows Operating System using an integrated install of Win2000 with a slipstreamed service pack.  It is only for clean installs.
You cannot remove the service pack that is slipstreamed into a Win2000 integrated install.

Creating a CD

Now that you have a directory with Windows 2000 Pro and the latest service pack integrated into it, you can easily create a CD that has Windows 2000 Pro with SP3 (or whatever Service Pack is integrated). Fire up your favorite CD creating software and use your Distribution Point directory as the source files for the CD.  If you use Easy CD Creator, you can get instructions here .