The version number of IE 5.01 with SP2 is 5.00.3314.2101. If you see a lower number, you can safely upgrade. This update uses the same Active Setup program as previous versions. I recommend that you download the Setup files to your computer so you can have full control over the installation process. Internet Explorer Setup Secrets and How to Download Internet Explorer the Right Way .
Service packs are cumulative.
That means all the fixes from Service Pack 1 are included in Service Pack 2. You can upgrade directly from any earlier version of Internet Explorer. IE 5.01 has been remarkably stable, and this is a set of well-tested patches. If you're concerned, you might want to wait until mid-April and see if other users have discovered any serious flaws in SP2's first 30 days of release. I use Windows 2000.