Try the following:
1. Boot Windows in Safe Mode.
2. Go to "My Computer" - "C" Drive - "Program Files" - "Parallels" folder and delete the "Parallels Tools " folder.
3. Reboot your VM.
Please, write, if this will help.
BAD_SYSTEM_CONFIG_INFO error probably means that some registry keys and their options are missing. After the Security Updates installation Windows could update all drivers and uninstall VM drivers. I think you'll have to repair Windows XP Installation in the VM. Please, look at these instructions: http://kb.parallels.com/entry/63/336/0/.