There is a link in the sql 2005 server SP3 download to download the SQL 2005 server express SP3:
http://www.microsoft.com/downloads/details.aspx?FamilyID=ae7387c3-348c-4faa-8ae5-949fdfbe59c4&displaylang=enI think the item you downloaded is actually the sql 2005 express with SP3 installer rather than an SP3 installer for sql 2005 express edition.
You should backup your Database before installing this sql 2005 express with SP3 applied. This way once you install, you can restore the DB's if there is a problem from backup.
make sure you go through the advanced install configuration this way you can specify the location where the application files are stored and where to store the data files.
You can also here define the instance of the install.