Is there any guidance on how to safely rip out service pack 2 for SharePoint Services 3.0? It appears to be causing some problems with designer-based WFs that are self-referencing.
This is why it is strongly recommended to test all Service Packs and Cumulative updates in a dev/qa farm.
Basically, you need to:
You will need to follow a process similar to the one outlined in this article as, for all intents and purposes, you are now effectively restoring an existing farm onto a new server.
And keep copies of your pre-sp2 backups somewhere safe, just in case you need to do this process a few times.
The workflow issue is a security feature, although in your current situation, you might not agree.
It's easier to just fix the recursion issues for the workflows because going forward it has to be done anyway (SP2 required for upgrade where it will be required to be fixed). Add trigger column(s) to your list and create a second workflow that fires on change monitoring the trigger column that is updated by the first workflow ending.