How to Install Parallels Tools in Mountain Lion in VM?

I set up a VM with Mountain Lion; running snow leopard on host machine. I need to access external drives from within mountain lion for rendering files etc, without logging into the main account. My understanding is that parallels tools will enable me to do that, but I haven't been able to install it in the VM. It tells me to insert the parallels tools installation CD in the VM. I have found the prl-tools-mac.iso within the HD library of the machine and I installed it there, but that doesn't help. Any suggestions?

Running Parallels 7.0 on Mac 10.6.8. Just created VM w/ 10.8. Mac Pro early 2009 if that makes any difference.

 

You are probably not asked to connect the installation disk but asked if you agree to connect it? (this is what usually happens) so you just click OK and proceed (Parallels connect the iso file automatically to VM 0 this is the way it usually works)

 

The way I did it is, shut down the VM. Edit and disconnect the CD/DVD-ROM or Image for CD/DVD. Boot up the VM, go to menu bar and select install parallel tools. Then you have to go to the volume it put in your finder. Run the installer like normal. Just be warned, video is not working correctly. It will be slow and has some bugs, makes Launchpad useless.