No, it's not an SP2 problem. It's common for some spyware and adware to tamper with this file. Also, you DO need this file as it is a part of the 16-bit subsystem neccessary for running DOS and some very old (16-bit) Windows applications.
Hmph. If you need DOS compatability, forget using Windows - Microsoft needs to be encouraged to just walk away from it. Instead, use something like Dosbox. It's safer and I haven't found a DOS game yet it doesn't do (though you need a VERY powerful machine). This way, if it crashes, you just close the window... it's in its own box and can't affect the rest of the OS.
Also, scan your system with Adaware and Spykiller - something may have come in and is screwing with you.