Installing this Service Pack does not change your current 
encryption level.

Setup determines the encryption level of your operating
system, either standard (56-bit) or high (128-bit) encryption, 
and automatically installs SP1 with the same encryption level. 

After SP1 is installed, if you want to change your encryption 
level from 56-bit to 128-bit, install the Windows 2000 High 
Encryption Pack. 

ftp://ftp.zedz.net/pub/crypto/microsoft/MS-2000/EncryptionPack/

There is no need to reinstall SP1 after installing 128-bit encryption.