It seems like someone's figured out what was causing the bluescreens... from the MS forum thread:
I had an Eee PC with XP Home brought to me with this same problem. I rolled back KB977165, rebooted and the system worked fine. I reapplied KB977165 and the rest of the updates available at Microsoft Update, and the problem returned. I replaced %System32%\drivers\atapi.sys with a clean version from a XP SP3 distribution folder and rebooted... voila! Problem solved.
For reference, the SHA1SUMs of the atapi.sys files:
If anyone wants to look at the non-working atapi.sys:
I will be looking at this more in-depth. If I find anything more, it will be posted in a follow-up comment at the ISC:
I uploaded the non-working atapi.sys file to VirusTotal, and this is the result:
Apparently, this update problem is the result of an infection.