I think there may have been *two* memory allocation bugs:
1. After installing the 10.5.2 update, some users were seeing the error
2. Some users (me!) were seeing the error when they added memory above 4GB to their Mac
I have found a partial solution:
1. Reduce the memory settings of the VM itself to 1GB
2. Start Parallels as a Login Item in the Accounts prefpane. This seems to let it grab memory earlier, maybe before it's fragmented or something.. who knows.
I can't reliably get a 2GB machine to start, the "pre-allocate" setting has no effect, and sometimes I have to lower the VM from 1GB to ~900MB to get it to start up. Frustrating. This still happens with build 5600.