OK it worked, but SP1 and or maybe the Dell OEM cd worked different.
I did it exactly like it said to, but the SP1 extracted itself to a folder and that was it, it never began the install. so I "cd" (changed directories) to the "update" folder located in the sp1 folder it extracted to. I then used "update -s:C:\xp-cd" and it slipstreamed without any issues and the rest was the same.
Update was the name of the file in the update folder that installs the SP1.
Thanks it helped me to get it to work.