I just upgraded Parallels to the latest build. About the same time Windows XP Pro decided to do an automatic update. Now, I get a Black SOD whenever Windows starts and the message "The application or DLL C:\Windows\System32\Dnsapi.dll is not a valid Windows image. Please check this against your installation diskette." Checking the web, I find that this is yet another "feature" of Windows. The solution seems to be to copy an uncorrupted dnsapi.dll into the System32 directory. I tried booting from the Windows CD into safe mode, but still get the same error message. I hate to reinstall Windows, which is what I had just done, and go through the hassle of contacting India and reauthenticating Windows. I opened an email ticket with Parallels, but have not received a reply.
You do not need to insert any special repair disk, just insert the one you used when installing Windows. Please see this article for reference: http://www.microsoft.com/windowsxp/using/helpandsupport/learnmore/tips/doug92.mspx Pay special attention to step 5 - press R, not Enter. This will repair your Windows, but leave all personal data and installed applications intact.