Network discovery
It seems that you do need to configure network discovery —> subnet to be searching your network subnets and you need the site boundaries also to be configured correctly. SMS2003 (SP1) will do that all automatically, you just have to enable network discovery and get it to run.
SMS won't assign clients to any site if you try to use Active Directory alone
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Installing and configuring SUS
It's a cinch to get SUS up and running. The requirement is that you have at least one machine assigned to a site which has the client installed. This is because when installing SUS it asks for the name of a machine to go in a Test Collection collection, which must meet the above criteria. I always use the name of the SMS server. I now delete the Test collection as it's superfluous to the running of SUS/SMS.
Patching IE/MSXML/MDAC etc.
I try to/would like to get the systems up to the latest SP versions of the aforementioned software packages/components before rolling out subsequent patches. It doesn't work like that so I select all applicable patches when rolling them out.
New Toolkit
MS have a released version 2 of the SMS Toolkit: http://www.microsoft.com/smserver/downloads/2003/ tools/toolkit.asp . Cheers to the mssms list for pointing this out.