Error occurred while creating virtual hard disk

I am trying to create a new virtual machine and install Windows XP. I've tried the 'Windows Express' mode, 'Typical' mode and 'Custom' mode but every time I get the same 'Error occurred while creating virtual hard disk' error. I have a genuine Windows XP disk with genuine Product Key. I have also tried uninstalling Parralels and then reinstalling and deleting space on the hard drive (there is now 20GB of free space available).

The reason I am reinstalling XP is because the internet connection no longer works on my existing virtual machine, so I thought I would it would be quicker just to reinstall XP (as I have already spent 2 days troubleshooting the internet connection and I don't want to waste anymore of my Christmas holidays!).

I would be very grateful if someone could help.

Thanks.

 

here a few further details that I should have added to my original post:

OS version: 10.4.11
Parallels build: 3212
MacBook Pro
2GB RAM
No boot camp configuration
Parallels tools are installed
I have renamed and moved the original XP VM (to avoid any conflict).

Thanks.