It should work on XP SP3, but is dodgy.
There are lots of bugs in ADE2.0 anyway, even if you do get it installed. Try replacing ADE2.0 with the older but more reliable v1.7.2.
Version 1.7.2, it is a little difficult to find, available on Adobe site for Windows and for Mac.
http://helpx.adobe.com/digital-editions/kb/cant-install-digital-editio ns.html
The forum software is sometimes corrupting the link above. There shouldn't be a blank in 'editio ns.html'. The following redirects to the same page: http://tinyurl.com/diged172