I have no idea what the root cause was.
Since Microsoft has put IE8 in the "critical" updates section, I decided to give it a try.
Why the hell not? They had the chutzpah to label it as "critical"; so, it must be good enough, right?
Well, it didn't sit well with my computer. After installing, just starting up IE8 made the computer unable to recognize the local area network connection!
And, on top of that, trying to shut-down the computer in any respectable manner (erm, I mean via Windows shutdown) was impossible! Windows would go into "shut-down limbo", which is basically a doldrums where no application can be run. Windows kindly reminded me over-and-over that it is currently trying to shut-down (via a nice pop-up, of course)...
Yeah, so, uh... Nature called. Time to remove this "critical" update.
After a bit of searching I came across this excellent knowledge base article. This goes into various ways of how to revert back to the previous version of IE. I went with the "Add/Remove Programs" approach and had no problems what so ever.
I found it very pleasently suprising that Microsoft apparently has put a lot of thought into removal of IE8!
Oh, but, for anyone who installed XP SP3 after IE8, it seems that you're in for a ride. Apparently you've got to remove SP3 before it becomes even possible to remove IE8...
wtf?