.NET Framework 2.0 supports Win2KSP3 and WinXPSP2 but not WinXP and WInXPPSP1. (Based on http://www.microsoft.com/downloads/deta ... layLang=en.)
So for targetting .NET 2.0, rejecting WinXP and WinXPSP1 but allowing Win2KSP3 is appropraite but not supported by the Supported Operating Systems alternatives.