Parallels Tools installation hangs in new VM

I'm trying to create a new VM from scratch with my old XP Pro SP2 disks in order to run IE6 for web testing.

I've run into a problem: the "Installing Parallels Tools" step hangs. I've been unable to find any way to recover except to delete the VM and start over, in which case it hangs at the same step. Here's a screenshot:

http://prentissriddle.com/tmp/ptools-hang.png

The VM is responsive to the extent that I can move around the Setup Wizard window but there's no "Start" button and when I try to close the Setup Wizard window it doesn't close. If I try to shut down the VM, I get the error message "End Program - Parallels Tools Installer - This program is not responding." Even if I tell it "End Now," the installer still fails to close and I'm back where I started.

If I take drastic measures and just close the VM window in Mac OS X, then when I try to restart the VM it won't boot. It just gives me a black screen as though it's shut down but is unresponsive to the Parallels Start button. Screenshot: http://prentissriddle.com/tmp/ptools-stopped.png

Any idea what I'm doing wrong? Thanks.

My configuration:

MacBook, 2 GB RAM, 300 GB hard drive plus a 100 GB Firewire drive where I'm trying to create the VM
Mac OS X 10.5.6
Windows XP Pro SP2
Parallels Desktop 4.0 Build 4.0.3844 (May 5, 2009)