Boot drive device not available- no optical drive

I have a Macbook Pro with no optical drive. I am running OS 10.8.2 and Parallels 7.0.15107.

With no optimal drive, I place a Windows 7 ISO file on an external USB drive and plugged it in.

In Parallels, chose File > New > and chose the ISO file in the install source from the USB drive. Auto detect fails- I manually chose Win 7.

It starts the install process for about 20 seconds. I can hear and feel the USB external being accessed.

Then I receive the errors:

PXE-E53: No boot filename received

PXE-MOF: Exciting Intel PXE ROM

No boot device is available, press enter to continue.

I have tried many permutations loading this (including using a virtual DVD drive, loading the ISO on the HD of my Mac,, etc), but always end up with the same errors.

Any suggestions?