Hi guys, just wanted to give an update that the UDK minimum specs have indeed been updated to Windows XP SP3. We did upgrade to .NET 4 which is the reason for the minimum spec change. For those users that use Windows XP 64bit, since there is no actual SP3, you can make a shortcut of the UDKinstaller. Then right click, and select Properties. At the end of the .exe string add -progressonly. That will skip the installer having to look for SP3. So for example it should look like:
You will need to manually reboot after .NET4 finishes installing.