The problem: With a brand new XP OEM disk, I tried to install three times using the procedures given in the Parallels user manual. The installation started each time, but always gave me many warnings that files could not be copied, and these installations all failed. The files which could not be copied were different each time, which makes no sense to me -- if there's a bug of some sort, then I think it should fail in exactly the same way every time. (In other threads, it is said that trying to install from an OEM disk which has been used before won't work because the OEM licenses are good for only one computer. In yet other threads, it is said that using an OEM license is perfectly legal, just so long as it has not been used before on a different computer.) The solution: Use the procedure posted at http://kb.parallels.com/en/4664. Basically, all this procedure does is make an image of the XP disk on the iMac hard drive, and then run the installation from that. And this also makes no sense to me -- I would have said that the XP installation program shouldn't be able to tell whether its located on a CD or on a hard drive. But obviously I would have been wrong. (I'm using OS X version 10.4.11 and Parallels version 3.0. I don't know whether my copy of XP was SP1 or SP2, but it eventually upgraded itself over the web to SP3.)
This KB article makes sense in case of Windows installation from CD failure due to read errors (unable to copy xxx file). Disk utility in most cases creates ISO image successfully, so try it. Regarding OEM Windows, see this KB article
