I got Parallels 3 back. Restoring the application from Time Machine didn't work - some driver trouble. I finally found an e-mail telling how to upgrade to 3 (it was my wife's not mine). So I uninstalled 4.0 and then downloaded & ran 3. I don't know whether my earlier restore from Time Machine made any difference.
I also restored my documents\parallels directory, but since I exclude the VM from Time Machine, I copied the backed up files that I created with my 4.0 install over. My Time Machine drive has been purging the last week with all of these VM backups. Then I was able to run Windows.
I didn't pay for the ability to download 4.0 as often as I want, so I guess I need to keep my .dmg file someplace safe. That's a pain. I wonder how I will install it when they fix it - whether I will be able to load a new 4.0 dmg or not. With the number of people who cannot install 4.0 at all, I imagine they will need to make it installable.
I also have no idea whether "Time Machine Integration" will allow me to keep my VM backed up without filling my Time Machine drive.
My wife was going to buy 4.0 while it is cheap, but decided to wait until it works for me.