By default, XP wants to contact the Microsoft servers to auto-search for patches, downloads, and updates. It also wants to send Microsoft information about any crashes you experience. The former can be an annoyance if the auto-update cycle kicks in at an inopportune time. The latter is a potential security hole, because the crash-reporting information includes a mini-dump of XP's memory contents; it can include snippets of open documents, passwords you've recently typed, and so on.
You can turn off both behaviors by right clicking on My Computer, selecting Properties, and first choosing the Automatic Updates tab. Select either Turn Off or, Notify me.
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