Changing ISO Location Worked For Me
Just wanted to add my two cents....I was experiencing the same issue while attempting to install 64-bit Windows 7 Ultimate using Parallels 8 on a brand new fully upgraded 15" MacBook Pro Retina.
I have installed countless VMs in VMWare, Hyper-V, Cytrix, and Parallels over the years. I currently have 64-bit Windows 7 running on my MacBook using Parallels 7 without any issues. I am a Network Engineer by trade and own an IT company.
Simply placing the ISOs in the Downloads/Parallels folder did the trick. I'm guessing leaving the ISOs in the Download folder and removing the legacy floppy disk drive feature would have worked as well based on everyone's comments.
Okay, assuming wasn't good enough....I just put a copy of the ISO back in the Downloads folder, started creating a new vm, recreated the original issue, disabled floppy option, reset vm, issue solved.
So, if you are having this issue, it seems that moving the iso to the parallels folder and/or disabling the floppy disk option are viable solutions.
Thanks everyone and Happy New Year!