Maybe this will help. - See below for the email I received from technical support regarding this error. I haven't tried it yet though. I'll give it a go this weekend.
"Hello,
Please first backup your Windows installation. It is in your Home folder
- Documents - Parallels - Windows folder.
After you make a backup please open your Home folder - Documents -
Parallels - Windows folder. Push command key, double-click .pvs file and
don't release command key for 15-20 seconds till you get Parallels
configuration window.
Click on Configuration. Open Booting tab and change boot sequence to
boot from CD first.
1. Insert Windows installation CD into the Mac.
2. Start your virtual machine and click into the Parallels window.
3. When the Press any key to boot from CD message is displayed on your
screen, click inside the screen and press any key to start your computer
from the Windows XP CD.
4. Press ENTER when you see the message To setup Windows XP now, and
then press ENTER displayed on the Welcome to Setup screen.
5. Do not choose the option to press R to use the Recovery Console.
6. In the Windows XP Licensing Agreement, press F8 to agree to the
license agreement.
7. Make sure that your current installation of Windows XP is selected in
the box, and then press R to repair Windows XP.
8. Follow the instructions on the screen to complete Setup.
Please let us know if the repair was successful and the data is safe.
---
Best regards,
Kate
Parallels Customer Service"
Last edited: Nov 29, 2007