What are the Media Center files for in service pack 2 (if you extract the network install) are those files used to update Windows XP Media Center Edition to the 2004 version?

No. Thats a seperate upgrade in its own.

Well I found my answer, and I was correct, those files are used for upgrading the original Media Center to the 2004 version.

If you already have a PC with Media Center Edition installed you will be able to upgrade to Windows XP Media Center Edition 2004 via Windows XP Service Pack 2 (SP2) once it is released. By installing the Windows XP Media Center Edition 2004 upgrade as part of SP2, you will also be able to take advantage of the security enhancements included in this service pack. SP2 is scheduled to be released in the first half of this year.

Upgrading to Windows XP Media Center Edition 2004