Thanks Paul Thurrott for clearing this rumor up. Read on!
A bizarre rumor about Microsoft making sweeping changing to its Product Activation technology in Windows XP Service Pack 1 (SP1) is completely untrue. The rumor, which was started by a small technology enthusiast Web site, had Microsoft changing the product keys for all of its customers using volume licensing. These rumors have since spread across the Internet and been embellished in various ways, including a version I came across Thursday morning claiming that Microsoft was making the change so it could charge licensees yet again for SP1. Not so, says Microsoft.
"There is no truth in this rumor," Allen Nieman, the Lead Technical Product Manager for Licensing Technologies at Microsoft told Wininformant Thursday. "We are not changing the way volume licensing customers install or deploy Windows XP. We are not issuing volume licensing customers new product keys. Volume licensing customers are not impacted by any of the changes we are making to activation in SP1. The only folks impacted by the changes we are making in SP1 are people with illegal copies of Windows."
The Windows Product Activation feature in XP SP1 will get two minor modifications, neither of which will affect any legitimate users. First, Microsoft discovered that the majority of pirated XP copies out there are tied to single volume license product key. So Microsoft alerted the company about the problem, changed their key, and disabled it for use after SP1. So anyone using this pirated key will be unable to upgrade to SP1 or any future updates via Windows Update. Also, Microsoft is adding a three-day grace period for people that use the same product key to install XP on two different systems; in the past, there was no grace period and the user had to immediately activation via phone in order to use XP on the second system. This will give users some breathing room if disaster strikes and you have to install XP on a new system.