Failed Upgrade from Parallels 3 to 4

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After several attempts and various failed workarounds, I have decided I am completely stumped and unable to upgrade my two Windows XP virtual machines from Parallels version 3 to 4. When I attempt to import my Parallels 3 virtual machines into Parallels 4 the conversion process gets as far as telling me I must launch my virtual machine and install the latest Parallels Tools to complete the install, but when the virtual machines launch they just hang in an endless loop of Windows blue screen of death, unable to launch messages. Windows is unable to launch successfully even in safe mode.
 

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