The 4.0 upgrade package is one of the worst Mac OS X software releases I have ever seen, if not the worst. Don't risk trashing your VMs- Don't upgrade until 4.1. I can't understand how this made it through QA. ps- don't beat up on John, the nice forums guy here. It aint his fault, and he's gonna be feeling a LOT of the heat from this.
Let me also be clear - I'm not saying anything negative about John, but Parallels 4 is terrible. Some posts are saying "it should be called beta," but frankly, I've used betas, and this barely qualifies as an alpha. Other posts are saying that they need reports with ticket numbers in order to solve problems, but I did that here, and so far it hasn't made any difference (although it's only been a few hours, so they could still do something).
another page full of bad upgrade experiences: http://www.macintouch.com/readerreports/virtualization/index.html