>After I have installed SP2 on the PC which I was using as a Server, Clients of the application are not able to connect to the specific server PC. All firewalls are disabled, Security rights are given to clients but still there is no connection.

Hi
take a look at ...
http://support.microsoft.com/kb/841249
http://support.microsoft.com/kb/841251
http://support.microsoft.com/kb/841252
http://support.microsoft.com/kb/839980

and also
sp3readme.....sp3a default install with DISABLENETWORKPROTOCOLS = 1 so your net-library is disable for msde ...so you need to look for svrnetcn.exe to enabled it (C:\Program Files\Microsoft SQL Server\80\Tools\Binn)