We have to file this news in the “We can’t even imagine that this is possible” category column. After years of waiting for Microsoft to finally release its long-awaited Service Pack 3 for Windows XP, just before it is ready to go live for download Microsoft pulls Service Pack 3 for XP from release.

While Service Pack 3 was scheduled to go live for download today, Microsoft at the last minute has found an issue with Service Pack 3 that it obviously believes is a show stopper, so the intended release was halted a mere hours before the intended release.

The problem seems to center around an issue with the Microsoft Dynamics Retail Management System, which is known as RMS. RMS is typically used by medium and small businesses and according to the report, the issue compromises or breaks RMS. Since the application is not widely in use by the vast amount of Windows XP users, the decision to pull Service Pack 3 from release is in some ways puzzling, as Service Pack 3 enjoyed one of the longest development and beta testing processes in Microsoft history.

The news of the postponement of the release of Service Pack 3 for Windows XP is certain to frustrate many users that have been waiting for the release for a long time now. According to a post by Microsoft, the plan is to put a filter in place that will prevent Windows Update from offering Service Pack 3 for download on systems that are running Dynamics RMS.

Microsoft also revealed that not only does Service Pack 3 for Windows XP have a problem with the Dynamics RMS, but so does the recently released Windows Vista Service Pack 1, as well. Microsoft claims that a fix for the issue with the Dynamics RMS is already in testing and will be available as soon as the testing is completed.

In the meantime, Microsoft is warning Dynamics RMS users not to apply Service Pack 3 for XP or Service Pack 1 for Vista until the fix is available. Dynamics RMS customers that have already applied Service Pack 3 for XP or Service Pack 1 for Vista should contact Microsoft Customer Support for additional information.

Microsoft also warned against downloading Service Pack 3 for XP from links that are outside of Microsoft, but to link back to Microsoft for download. These links to Service Pack 3 for XP are for Technet and MSDN subscribers, and are not the way that general customers should obtain the Service Pack.

Microsoft in addition has halted the general distribution of Service Pack 1 for Vista due to the RMS issue for the time being for those that have automatic downloading enabled. While they are maintaining availability of Service Pack 1 for Vista for those customers not running RMS that can benefit from Service Pack 1 for Vista, it will have to be applied manually for the time being.

The long delays of Service Pack 3 have already given Microsoft a black eye, and this last-minute bug discovery in a Microsoft product that the majority of Windows XP users are not using will just compound the frustration that many XP users are already feeling. While Microsoft does indicate that they are working on the issue, no new date has been set for the official release of Service Pack 3. It is hard for us to believe that Microsoft did not catch this issue with its own extensive internal testing of Service Pack 3 for XP and Service Pack 1 for Vista before things got this far.