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Reinstalling fixed the problem for me too.
I just installed Parallels 8 and...... IT WORKS! You can cut and paste from Host to Guest Mac OS now. Thank you!
Hallelujah! Can't wait to try it and to get rid of Fusion.
Here we are on Parallels 7 and we STILL don't have cut and paste for Mac guest VM. Come on Parallels!! WTF?!
This works in Fusion. Really sad that it's not working in Parallels.