A. For SQL 7.0 you HAVE to - it is a pre-requisite.
NT Service Packs do not have any shared code that affects the SQL Server kernel, so application of NT service packs should be independent of SQL Server and should be applied based on the stability or otherwise of your NT system - plus it's exposure to security exploits, denial-of-service etc. And there are a LOT of these fixed in NT4 SP4.
Always check with your hardware vendor and any suppliers of 3rd party device drivers, systems management, virus checkers etc. that they support SP4 and application of the SP won't stop the server from booting! In particular there are issues with Adaptec and Compaq Array controllers (For Compaq Smart IIP controllers make sure your firmware as at least version 3.08). If you have some identical/similar hardware on less critical or test systems, then apply the SP to these first. For Compaq servers as a whole you need to be on at least SSD 2.11.
However, SQL Server does tend to stress the hardware/memory/pci bus/disk subsystem and could therefore expose a bug/compatibilty problem between the NT kernel and the hardware or 3rd party hardware device drivers. Therefore it is technically possible for it to expose a bug in an NT driver that doesn't otherwise show itself.
*** The following SQL Server errors have been reported by multiple people to Microsoft since they applied SP4. Microsoft are investigating. The errors indicate a problem between the NT supplied scsi drivers and the 3rd party supplied ones/raid drivers etc. ***
"Server blue screens fingering scsiport.sys as the culprit"
"SQLMaint.exe indicates database errors in indexes, and again crashes attempting to rebuild them"
When attempting a backup to disk - "Msg 18204 : dbsvolopen: Backup device ' D:\MSSQL\BACKUP\test_backup.DAT' failed to open, operating system error = 2(The system cannot find the file specified)"
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