"The primary focus of Microsoft .NET Framework 1.1 Service Pack 1 (SP1) is improved security. In addition, the service pack includes roll-ups of all reported customer issues found after the release of the Microsoft .NET Framework 1.1. Of particular note, SP1 provides better support for consuming WSDL documents, Data Execution prevention and protection from security issues such as buffer overruns.
SP1 also provides support for Windows XP Service Pack 2 to provide a safer, more reliable experience for customers using Windows XP." From the MS website. Sounds important to me .
You could Google Problems installing Microsoft.NET Framework 1.1 Service Pack 1" There's a few there .