I have the 2TB MY BOOK Essential and it installed the firmware with XP Home Edition SP3 without a problem.
I also still use Office 2000 so I have very old programs. Smartware automatically installed as well.
Smartware really slowed down my machine so I unplugged the external drive. What I find is that SmartWare (ie WDSmartWare.exe) still takes from 10 to 32% of my CPU time, even when I ‘exited’ the program and removed the external drive (unplugged it). It seems WDSmartware is still running something in the background. SmartWare can take up to 75% of my CPU time so that I can be waiting up to 20 minutes before I can use my PC. When you disconnect everything, it still takes 8 minutes for all my other programs to load. I am about to remove the WDSmartware program to see what happens the speed.
It may be that the only way you can get around Smartware is to remove it when you don’t need it.