In Windows XP, very few installation situations require a reboot. Microsoft advises developers that, "Reboots are unwelcome by customers and, in some situations, can make deploying applications difficult". Quite an understatement!
Some situations that require a reboot: Installing a Windows Service Pack or authorized system redistributable may require a reboot. Installing a Graphical Identification and Authentication dynamic link library (GINA) requires a reboot. The GINA is a replaceable DLL component that is loaded by Winlogon. The GINA implements the authentication policy of the interactive logon model, and it is expected to perform all identification and authentication user interactions. For example, replacement GINA DLLs can implement smart card, retinal scan, or other authentication mechanisms in place of the standard Windows XP user name and password authentication.
Situations that do not require a reboot: DLL registration. Updating a service component. Replacing an existing file that is in use by an application. Installation rules mandate that an installation must give the user information about any open applications that have loaded the resource files you are updating so that the user can shut down those files and allow file replacement to occur without a reboot. Also, for many components, developers should install the components side-by-side or use MoveFileEx with the delay until reboot option to avoid this situation. If a reboot is required, a prompt must be presented that allows the option of deferring the reboot.