I had the same problem when upgrading from PD 15 to 17, Big Sur only had 1024x768 in resolution.
Did revert to PD 15 but that didn't help, had to revert to an old backup of the whole Big Sur VM.
Did of course uninstall Parallels Tools 17 and install Parallels Tools 15 but didn't work anyway.
So, either Big Sur stores something hidden and unknown stuff that prevents it from working even though the extensions is clearly from Parallels Tools 15 and clearly loaded or maybe Parallels Desktop 17 is installing its own EFI (or some other things) that screws things up.