I seem to be having a real challenge setting gup my WSUS server.
I have the configured the WSUS 3.0 SP1, downloaded updates and ready to deploy, however non of my client computers are showing up in the consile.
I have checked all the settings, such as GPO to ensure they are pointing to the WSUS server.
What could I possibly be missing?

Firewall settings blocking traffic?

Yes, firewall has been disabled in the Services, on both server and workstations.
I can ping and map to the workstations, and see them in Active directory as well.

If you've quadruple checked all the settings and confirmed the server and clients are using the same ports and the web admin interface is using a different port, I'd say stick a packet sniffer (such as Ethereal) on the server and a client and confirm the client is attempting to connect and the server is seeing the packets and work from there. I'd also probably hook the client to the same switch as the server while troubleshooting.

Issuing "wuauclt /detectnow" and "gpupdate /force" on the client can hasten the detection process, otherwise you'll have to wait until the client lazily decides to check for updates, and then updates itself if necessary. The default time is 22 hours I think.

Another problem can be if you imaged the clients without sysprepping, they will all appear as a single client. See WSUS - Client Configuration Checks & Known Issues for resolution and other tips.

Take a look at the Options for configuring your WSUS server. Make sure you do not start with the computer discovery using Active Directory. This will place all of the discovered computers into Unassigned and then you can create computer groups and move the computers from Unassigned into a group.

Also, if memory serves me correctly, the Windows XP clients must be at a minimum SP1 level so that they have the newer Windows Update and WMI requirements needed for discovery. If clients are pending a reboot for updates, they will not perform an update query until they have been rebooted. This means that if there are multiple updates requiring reboot, they will not initiate the next update discovery until the client has completed the first set of updates.

Until the clients are fully updated, your users will find that logons will take a while, sometimes minutes. Remember that GPO's are applied at system startup and this includes the download of new updates. This occurs as Computer based policy, so logon screens will not be presented until the update downloads are completed. The comptuers are not broken, they are busy.