Is this a recent develpment? I have re-installed and done all the updates, after updating 3138612 on systems as recently as 6 months ago. Activation was only available using the telephone system but it worked just fine
SP1 was just one of the many updates that were offered
Maintaining Win7 for me and my clients has been made vastly simpler because I have always created a system image just after install and all updates and activation but before data and other apps were installed. Those system images are like magic. I replace a failing hard drive, then restore that image and we have a working, updated and activated system ready and ready to go in less than an hour -- every time.
The only time I need to do a complete install is on a machine I have not worked on before.