I had to reinstall OS X and thus have to reinstall Windows XP Pro. After installing Parallels, I close the application, insert the Windows XP Pro CD, and then launch Parallels anew, click on Install OS button, and eventually get stuck at the following error message every time: "Setup cannot find a previous version of Windows installed on your computer. To continue, Setup needs to verify you qualify to use this upgrade product". Well, this isn't an upgrade for Windows XP Pro, it's the full version. What's going on? Separately, how do you increase the size of VM image (from 8GB) without installing Parallels Tools (which can't be installed until the VM OS is installed)? thanks!
I've really ever had this message only when I was using an upgrade version. Are you certain this CD is a full version? For your other question, when you create the virtual machine use the custom selection, you'll be able to choose the size of the virtual hard disk.
