I have the same problem. I just upgraded to Snow Leopard and then upgraded from Parallels 2.5 to 5.0. I then upgraded my Windows XP virtual machine, but it will not allow me to install Parallels Tools. I start the installation and the Setup Wizard will start and you think all is going well. The green status bar fills to the end, and then the entire process stops. I have waited hours to see if the installation will complete, but it does not. Then I have to cancel the installation. I have tried this several times with the same outcome.
After upgrading from my v4 to v5 build 9308, I couldn't even get the Parallel tools upgrade to even start the installation much less finish it. It basically bogged down my entire Mac OS let alone the WinXP virtual machine to the point of being unusable. After force restarting my MacBook Pro, I went into my user's Library/Preferences folder and deleted all related Parallels Desktop preference files/folders. Then, I restarted Parallels and my virtual machine. This time, Parallels and the Parallels Tools installation worked flawlessly. Everything runs great now.
Unfortunately, that did not work for me. I called up support and after two hours on the phone finally got it all working. The problem for me was that Norton Anti-virus was taking up too much memory, so there was not enough memory for the Parallels Tools installation program to complete. What the EXCELLENT support person (Mahesh) did was direct me to delete all my temporary files, and I also deleted the Norton Antivirus program (just turning it off did not work). Then I ran the Tools installation and all worked. Now Parallels seems to be working as promised and looks great.
