I was able to slipstream service pack 3 on my sp2 xp cd, however when i try to install it i get a The Product ID you enter is not valid. Is this is a problem with the service pack 3 or nlite? It dont make sense since usually service packs dont require a separate key since my key works works fine

its service pack 3 build 5508 if that helps

This has been discussed before. Use search button. Some reports that theirs valid keys do not work on XP SP3, and other say that their keys works. Also, I read somewhere, that with SP3 RTM, you will not have this problem.

whats strange is when i just slipstream sp3 my key works. But when i remove components, i get that invalid key

If you slipstream on a machine with a different copy (key) and the copy you are doing isn't legit, the key from installed copy is assumed. It happens since SP2.