Simple problem: No sound because of missing sound driver. Reinstalling Parallels tools does not help (no wonder since it doesn't include any sound drivers), and after searching the forums a bit I found that the driver is supposed to be included on my Windows XP install CD, but the install media I have does _NOT_ include this driver (came with my Dell laptop which is now scraped for a mac with parallels). I cannot find this driver anywhere on intels pages, or elswhere in the wild. The newest driver from Realtek (which should work since the intel chip is a Realtek derivate) makes sound garbage, so Parallels obviously have some bugs in the implementation requiring the old orignal ac97 driver.
Can you specify which version of Parallels is that? As for now, I would suggest the following article if you have not tried it already: http://kb.parallels.com/en/5751
I downloaded the latest 4.0 release (build 3810). Scanning for hardware changes (as suggested in the KB article) unforntunately does not make the old original Intel AC97 driver magically appear on my Windows XP install media, and the only driver I could find for download anywhere is the newer driver (in the realtek package) which as you propably know already doesn't work properly (or rather: your sound card emulation doesn't work properly with it).