Parallels Tools is not fully functioning in my machine as well. I've recently upgraded my OS to Snow Leopard, only to find out Parallels 3 wouldn't work (my VM BTW is WinXP Pro). My quick fix was to upgrade to 4.0.3846, which went by without trouble, no error messages. I encountered the following:
1. Mouse synchronization not working between host and VM (I'm stuck with having to hit ctrl + alt to release cursor all the time)
2. Dynamic resolution tool not working (guest OS window not resizing automatically)
3. Coherence is not working
4. Time synchronization not working
The other tools seem to be working fine: clip board synchronization, shared profile and applications tools, and parallels compressor. It is more of a convenience issue of seamlessly working between host and VM, but a convenience I sorely miss in old reliable Parallels 3. I've tried many times reinstalling both the Parallels Desktop and Parallels Tools alone. No working solution for me yet, but let me share the three options offered by Parallels Support:
METHOD 1: Uninstall and Re-install Parallels Tools using the VM Control Panel => Add and Remove Programs (
http://kb.parallels.com/en/4841) followed by reinstall of Tools from the Virtual Machine Menu of Parallels Desktop.
METHOD 2: Uninstall Parallels Desktop using the latest dmg file (build 3846) then re-installing using the same. You won't lose your VM with this trick, but it didn't work for me still.
METHOD 3: Alternate method of re-installing Parallels Tools by connecting the VM to an ISO image (prl-tools-win.iso) in your /library/parallels/tools folder (placed there during initial install of Parallels 4) then installing tools from the VM side.
METHOD 4: Removing Parallels Tools entirely by using Windows Installer Clean Up Utility (
http://support.microsoft.com/kb/290301) in combination with Add/Remove programs in Control Panel. This is to be followed by fresh installation from the Virtual Machine Menu.
Apparently the above workarounds have worked for some. I hope it does for you. It hasn't for me. I'm still waiting to hear from the support staff who has escalated my issue to their second level engineers. I will share it here if I do get it.
Goodluck,
Emmanuel
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