From a working Ubuntu 7.10 installation under Parallels 3.0 build 5584 I followed the instructions to install the tools. It seemed to go fine and rebooted. After the reboot the first thing I noticed was that it was hard to login because the keys auto-repeated so fast that I could enter my username and password correctly. Once that was gingerly achieved, the mouse clicks failed to cause any effect on the UI. So, at this point I don't think I can even uninstall the tools, but before I revert to a snapshot perhaps someone has another idea. Ed.
You can change the 'Repeat Keys' delay under the 'Systems - Preferences - Keyboard' menu, to increase the delay timing. This worked for me.