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Same issue here running Win10 VM on Big Sur. Using the Apple hypervisor as the Parallels version kernel panics my MBP every time. Also tried...
Same for me and I can't change the settings as it wants me to start the Windows 10 VM and shut it down properly. Unfortunately, I can't open it...
To update my last post, I installed Parallels 16 that was just released and now I can install the Parallels tools without issue. So far, so good.
I found after many tries to set up Big Sur on my Parallels Pro 15.1.4, all I needed to do was not install the Parallels tools and it worked....
After fighting with this for days, it was a check box away! Thanks AngeloR!!!