I don't know your network, but some things to try with IE 8.
Make sure you really do have an internet connection. Start Sins or another browser, or some other game, see if it connects. If it doesn't, reboot. You rebooted at the install, but sometimes changes remain pending for some reason. Won't hurt to reboot again.
If still no joy, you can then open a command prompt from Start, All Programs, Accessories. Type ipconfig in the mysterious land of command line darkness and hit Return. You should see info on your connections that is arcane, but nothing should say service unavailable.
In IE 8 itself, Tools Menu (press Alt) if you don't see it. Then Internet Options. go to the Connections tab, and click on LAN settings. Here it gets tricky because I do not know if DSL counts as a dialup connection. Maybe someone else does. Won't hurt to try Auto Detect.
The Setup command on the connections tab one layer back would setup your internet connection afresh, but I can't think why or how updating to SP3 would have changed the internet connections in the first place. Try this last.