http://www.wsusoffline.net/ This is what i use as part of my toolkit - it downloads everything and has a front end that automatically patches up a box. The neat thing about it is you can pick as many of as few products as you need, and it'll apply only the ones you need.

Windows XP is currently under legacy products, and since WSUS offline updates directly downloads the updates off MS, this may stop working when MS stops hosting patches, some time in the future.

EDIT: As of 2014, support for XP has been dropped on new updates of WSUS offline updates - You can find the last version that supports this, 9.2.1 in their archives.

WARNING: YMMV. I think we're close, but not quite there yet. These instructions have worked for some people, but I'm getting an error on the last step. So I think we're missing something. It's getting late here, I'm going to flag this as a community wiki. Perhaps you can sort out what I've missed.

Slipstreaming Windows 7 Service Pack 1

Windows 7 slipstreaming is not officially supported. You can use third party tools to accomplish the task. You can also do it yourself manually by unpacking the cab files, editing three text files, and using dism command to update the installation packages. Here's how to do that step by step:

1. Copy install.wim from your installation disc to your hard drive.

2. Go to the download Windows 7 Service Pack 1 webpage on the Microsoft website, and then click Continue.

3. After you have passed the "Genuine Advantage" test, you can choose to download either windows6.1-KB976932-X64.exe, or the 32-bit version windows6.1-KB976932-X86.exe
   

4. Extract the contents of the service pack with the -x command. Example: windows6.1-KB976932-X64.exe -x
   

5. Extract the contents of windows6.1-KB976932-X64.cab with a tool like 7-Zip (any compression utility that supports cab will do).

6. Extract the contents of NestedMPPContent.cab into the same folder.

7. Open update.ses in notepad and change Absent into Installed under OfflineInstall. It should look like:

   <Tasks operationMode="OfflineInstall">
       <Phase>
           <package id="Windows7SP1-KB976933~31bf3856ad364e35~amd64~~6.1.1.17514"  targetState="Installed"/>
       </Phase>
   </Tasks>
   

8. Open update.mum and Windows7SP1-KB976933~31bf3856ad364e35~amd64~~6.1.1.17514.mum (or the 32-bit equivalent) in notepad and change allowedOffline="false" to allowedOffline="true"

9. Extract all the language cab files KB976933-LangsCab0 through KB976933-LangsCab6, overwrite files if prompted.

10. Launch a command prompt with Administrative privileges.
    

    Let's assume you stored the extracted service pack files in a folder called C:\sp1. Create a new folder called C:\offline, and note the location of install.wim which should be in the sources folder in your Windows 7 installation disc contents. Use the following commands (change folder names where necessary:
    

    DISM /Mount-Wim /WimFile:C:\win7-contents\sources\install.wim /Index:1 /MountDir:C:\offline
    DISM /Image:C:\offline /Add-Package /PackagePath:C:\sp1
    DISM /Unmount-Wim /MountDir:C:\offline /Commit
    

TODO: add instructions for creating bootable disc