Hmm... I have a MacBook Pro running OSX 10.7.2 and a WinXP Home Edition SP3. My sound works.
I've attached a screen shot showing my Hardware Options. Do you not have the Sound setting? What about at the bottom of your VM window... do you see a Sound Icon? Check Control Panel | Windows Sound and Audio Devices. Do you see Parallels Sound Card being used?
Edit: Looks like you found it yourself while I was typing.
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Last edited: Oct 15, 2011