"Image Tool is unable to process the file..."

Hi, I know that similar threads exist generally about increasing disk size, but I haven't found a post on this particular error, or at least I can't see that someone has posted the exact same one.

When I try and increase the size with the Image Tool, it goes along an does it business for a while, and then at the very end, it gives me a popup message saying:

"Image Tool is unable to process the file. The format of the hard disk image file you selected is not supported in the current version. Please open the virtual machine that is using this virtual hard disk in Parallels Desktop to change the format".

Ummm, guess the first question, is what "format" is it referring to?

I'm on the latest build of Desktop 3.0 (5584), running OSX 10.5.2, and have tons of disk space on the host. I have no snapshots, and have both a C: and a D: drive fixed (trying to do the C: drive from like 5GB to 10GB).

Any help would be greatly appreciated.

Cheers,
Greg