I am having a strange problem with scren resolution on Ubuntu Edgy. I can run at 1024x768 no problem, but if I run dpgk-reconfigure -phigh xserver-xorg to set 1440x900 for my MBP, with a custom screensize already set in the VM configuration, I get to a fullsize login screen, but when I try to login the screen flickers and switces briefly to console before throwing me back at the login screen again. The really strange thing is that when I first installed the VM I was able to set the large scren resolution. I changed back to the smaller one for a while but now can't get back to where I was before! I think this is really an xserver question rather than parallels as such, but I would like to know if anyone else was able to recover from a similar position?
dpkg-reconfigure is nice and all, but I've found this approach to be extremely brittle (at best) - as you've discovered. I've had much better luck editing xorg.conf directly (it's in /etc/X11); this gives you absolute control over available resolutions/color depths/etc. This file is *very* well documented elsewhere; I won't repeat it here. The only trick is the selection of a monitor frequency range which actually allows the desired resolution/refresh rate/color depth.
Thanks everyone. I found that dpkg-reconfigure was not the problem, it wrote the same xorg.conf I would have myself. In fact there is something screwy going on with my gnome settings: I created a new user and I could log into the new big screen no problem. Souken C.Ingram gave me the clue with mention of gconf. Now to nuke my gconf settings and get back on track!