Back some time ago, we were trying to use the same player for XP and Vista. Since Vista COMES WITH WMP11 AND... Vista requires WMP11, our player required MWP11.
However, after loosing all our hair and sanity, we finally split the player. 4.00 and later has an XP player that works with WMP9 quite fine. The Vista player still requires WMP11, and Vista only runs with 11. One beta tester has reported his .WMV (Microsoft format video files) DO NOT play with WMP11. And you want us to be free of "all problems"? We're working on it daily!
Currently, IE7 is required. However, since IE6 has lots of problems, and IE7 comes down with Windows Updates, you really, really, really should have IE7 anyway. We think we could run on IE6, but I am not going to have us spend the time to find out.
IE7 is superior, and safer.
As to XP's SP3, some of our Beta's found improved performance with Hoster 4.0x on it. We test on SP3, not on SP2. Thus, SP3 is recommended. Keep in mind that Microsoft deemed it important enough to develop SP3, and for you to download and install it.
Required for Hoster? Not to my knowledge, but recommended.