I'm having the same issues here.
Parallels Tools installation seems to go fine, and after that mouse transition works fine. However, I still have problems with dynamic resolution adjustment if I try to resize the window beyond 1024x768 (which includes going fullscreen). I guess there must be some maximum resolution configured somewhere, but I just cannot seem to find it.
Any help would be much appreciated.
UPDATE: Nevermind, I already found the issue I was having. The VM machine hardware configuration was only assigning 3MB of video memory. I raised this value to a more appropriate 128MB and now it works fine.
Last edited: Sep 23, 2010