As of the 31st of August 2012 Steam will no longer officially support Windows XP Service Pack 1 computers. People still on Service Pack 1, which Microsoft themselves dropped support for before Half-Life 2 was released, or without a service pack at all can find instructions on how to upgrade here.

The decision was based off the Steam hardware and software survey data collected by Valve, which reported that less than one percent of users were on XP SP1. This announcement does not mean Steam should suddenly stop working for you if you are on SP1, but it does mean that further updates will not be tested on the system and if it does stop working, so be it, and Valve will not attempt to fix it.

Source: CVG