A brief history of localized Windows
It used to be that we either localize a product or we don't. Either you could get Windows 2.10 in Swedish or you couldn't. (You could). Those were the days...
Starting with NT 3.5, we started splitting up localization based on SKU. For instance, you could get Norwegian NT 3.5 Workstation, but not Server. Similarly, you could get Swedish NT4 Workstation and Server, but not the Option Pack or Terminal Server Edition. Basing localization level on a SKU level gave some flexibility in picking localization level and this is something we still do (there's still no Norwegian Server).
Windows 2000 introduced MUI. MUI allows you to install a language pack on top of an English Windows installation, which in turn gives almost the same result as a fully localized product. This is pretty handy in a multi-cultural environment - your administrators are happy to know that all installations are from the exact same source when it's Patch Day, and all users are happy to see the UI in their favourite language. It also works great in a Terminal Services environment; you can have several users logged in at once, each with their own language settings.
MUI is created from the same files as a fully localized build, so while MUI is useful for many end users, it didn't really buy us the ability to scale to more languages for a given SKU. If we want to build a new MUI language, we might as well make it a full product. It did however give us the ability to scale between SKUs. There's still no fully localized Norwegian Server, but there is a Norwegian MUI available for Windows Server 2003, and this MUI gives you the same localization coverage as you get on a Norwegian Windows XP.
Windows XP introduced some novel use of the MUI technology. First, some "special" SKUs are shipping only as English or as English+MUI. TabletPC is an example of this. Second, we have used the MUI technology to scale to more languages - what we call LIPs (Language Interface Packs).
LIPs differ from MUI in that a LIP does not contain as many strings as a fully localized product. A LIP contains only a reduced set of files, but these files have been hand-picked to cover the majority of the user interface you see on a daily basis. Granted, it's not as "good" as a full product, but it has made it possible for us to reach a lot of new languages quickly. LIP is also different from MUI in that it's more directed at your general end user. Therefore, any user can download a LIP for free.
You can get your lip at http://www.microsoft.com/downloads/details.aspx?FamilyID=0db2e8f9-79c4-4625-a07a-0cc1b341be7c&displaylang=en. Be sure to read the release notes for the language you want, as there are some differences between them (supported base language etc).