If you have a new(er) (perhaps circa 2007) MacBook or MacBook Pro, and are using Leopard, you may be facing problems installing Windows on Parallels even if you upgrade to the version of Parallels Desktop recommended by them. In my case, the problem was that after the Windows install started up, loaded drivers, and began OS install, there was a BSOD with errors that started with:

SESSSION3_INITIALIZATION_FAILED …

After reading through various forums (not directly related to Parallels) I got the suspicion that this may be related to the CD/DVD drive access. A call to Parallels yielded a quick and friendly workaround that did work around the problem by:

• Upgrading to the recommended Parallels version (link above)
• Deleting the Parallels Windows XP VMs from my disk (default parent directory: /Users/your-id/Documents/Parallels/)
• Cleaning out Trash and rebooting
• Using the Disk Utility to rip the CD image to my desktop as a DMG
• Restarting Parallels Windows XP VM install and pointing it to the CD image

If you need finer instructions, please ping me. I couldn’t find this info anywhere on the net.