samba - Oct 2004 - samba 3.0.7, windows 2003 DC and lmcompatabilitylevel

I recently had my windows xp pro workstations around campus all working
just fine with my samba 3.0.7 implementation.  I had my samba server set
to use my windows 2000 servers for authentication.  My windows admin
pushed down the sp2 for xp pro and made various policy changes (too
numerous to mention and even she is unsure of just what was pushed).
Since then my xp sp2 machines could not auth into the samba server.  If
I removed sp2, they could get in.  I have subsequently found that the
lmcompatabilitylevel value is set to 3 in my sp2 machines and if I
changed it to 0, then I could authenticate.  Has anyone coverd this
gound before?  Any ideas would be appreciated.
 
Thanks.
 
Brian ...
 
My smb.conf follows:
 
[global]
   printing = bsd
   printcap name = /etc/printcap
   load printers = no
   guest account = nobody
   log file = /usr/local/samba/var/log.%m
   log level = 3
   preserve case = yes
   security = yes
   dns proxy = yes
   map archive = no
   create mode = 0744
   directory mode = 0740
   dead time = 10
   dos filetime resolution = yes
   short preserve case = yes
   password level = 8
   password server = eiudc02,eiudc03
   security = server
   username map=/var/local/samba/lib/users.map
 
   socket options = TCP_NODELAY
   interfaces=eri0
   wins proxy = yes
   wins support = no
   wins server = 139.67.9.219
   local master = no
   preferred master = no
   domain master = no
   os level = 65
   name resolve order = lmhosts host wins bcast
   browseable = yes
   netbios name = xlaser
   workgroup = EIU
   
[homes]
   comment = Home Directories
   browseable = no
   guest ok = no
   read only = no
   create mode = 0744
 
[namespace]
   comment = Global Root
   path = /export
   guest ok = no
   browseable = no
   public = no
 
[vippide]
   comment = VIPP IDE Forms and 
   path = /usr/xgfc/projects
   valid users = csblm, csklc1, csalc
   public = no
   writeable = yes
   printable = no
   browseable = no
[vippQ]
   comment = VIPP Printer Input Queue
   path = /var/spool/XRXnps/inQ
   valid users = csblm, csklc1, csalc
   public = no
   writeable = no
   printable = no
   browseable = no
[vippnew]
   comment = New VIPP files 
   path = /usr/xgfc/projects/new
   valid users = csblm, csklc1, csalc
   public = no
   writeable = yes
   printable = no
   browseable = no
[xlaser]
   comment = Root Directory
   path = /
   valid users = csblm, csklc1, csalc
   public = no
   writeable = yes
   printable = no
   browseable = no