I have 2GB of RAM in my iMac CD. When I tried to set the RAM allocated to XP to 1GB, it warned me that the maximum recommended RAM was 604MB, and that larger amounts would slow it down. Why is this ? I would have thought that 1GB each, for OS X and XP would be fine.
You need to first go to the Preferences dialog under the Parallels menu and configure the Max memory for Parallels. On my 2GB MacBook Pro, I have 932MB to Parallels. I then give Windows 832. You should experiment with values to figure out what works best for you.