Yes, you've got the right thing. Should be about an inch or so long and not much wider than the USB metal bit itself. A dongle is just the term for something that sticks out from your computer a bit when you have it plugged in.
From my experience, SP2 is better at handling bluetooth devices like your adapter than SP1. If possible, update by going to
http://www.windowsupdate.com with internet explorer. It's free, and definitely recommended.
You could also do with the proper Nokia software. You might want to try this before the SP2 upgrade, if that's an option. Get the Nokia PC suite here:
http://www.nokia.co.uk/A4144903
(even if you have PC suite on CD already, try downloading the latest version above.)