This worked for me.
Open Parallels.Don't start it. Click on Virtual Machine and go to configure. Click on Memory and increase it to close to 2 MB (I have 2mb om my computer). Click OK and then start Parallels. It opened XP and ran VERY slowly. Then go to control panel and add/remove programs and remove MSE. This takes a long time since everything runs so slowly so be patient.
Once MSE was gone everything worked fine.
I went back and readjusted the memory allocation.
Hope this works for you.
LHG