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For your USB devices: Have you checked and made sure that you've installed all the motherboard drivers? Did you turn off Plug and Play from your services.msc?
There shouldn't bee too many problems with not putting in all the extra patches from Microsoft, if they are unstable for you.. PROVIDED you run an updated antivirus in realtime. It still seems strange that a critical patch from MS should break down so much.
Regarding installing Vista .. well it seems like there is a huge divide in the IT world on what the right time for Vista adoption is. Personally, I've been running Vista for more than a year now and have had no issues at all, but there are others that have. If you do decide to go with Vista, run the compatibility advisor first and make sure that it's going to be compatible with your hardware.
And if you are going to go the Vista route, then there isn't really a need to make XP stable. You can use an upgrade disk to do a fresh install of Vista (which is probably recommended, anyway).
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