If its for testing websites then you definitely need XP.
Also, you'll need two copies of XP virtual machines; one with IE6 and the other with IE7. The browsers are sufficiently different to warrant explicit testing.
Now the licence issues. As long as you only run one virtual machine at one time you only need one licenced copy. They will run concurrently but you'll have trouble sleeping at night worrying that Microsoft may not like this

This, of course, is the issue of running XP in a virtual machine: Microsoft doesn't know if it took the blue pill or the red pill.
Be careful when you buy the licence as there's different versions of XP, all with different licence numbers.
There's two genres of XP: Home and Professional. The main difference for you is that Pro enables XP to be joined to domains and run IIS. If you're doing websites, I'd strongly recommend you get the Pro version as you can then run ASP and ASP.NET on it.
Roughly speaking there's the following types of XP:
- end-user full XP - the 'off-the-shelf' version
- end-user upgrade XP - the version that requires Windows 2000 to install
- OEM XP - the version that's tied to the BIOS (the type that Sony, Dell, etc. ship) this version can't be installed on any other machine.
- MSDN XP - the testing version that MS developers buy (generally they have around 10 licences)
- Select XP (or whatever its name is these days) - the version that large companies buy
You will need the Full XP licence version. Generally this will install quite happily in a virtual machine. The original machine it was installed on should be off of the internet (I would imagine that the WGA check phones home with the licence key).
MS used to do an OEM version that wasn't tied to the BIOS. This was the version that would ship from little computer shops. The interesting thing about this was it was about half the price of the boxed version but had the condition that you could only buy it if you were buying hardware. So you bought it and a floppy cable! (or more likely a new hard disc, some memory, whatever...)
There's a good chance that the ex-university version you have is a select version. This disc won't work with a non-Select licence key.
Once you've installed it on Parallels and confirmed the licence, make a backup of that virtual disc. You can the duplicate it and install IE7 on one copy and leave the other with IE6. You can have as many copies as you like on your Mac machine as all copies of XP won't be able to tell that they've been copied -- they can only tell if they've been moved to a different Mac machine (I hope that makes sense!)
Oh, and be careful if you change the amount of memory for the VM as this is one of the factors that XP uses to calculate the hash that tells it that it's moved machines (along with the MAC address, disc controller serial number, etc., etc.) You need 4 (I think) variables to change to trigger it to phone home to Billy again.
.Glenn