no thanks to phone support, I got myself fixed.
In short:
1. Booted into Windows Safe Mode (not the Safe Mode from Parallels Menu because it got stuck in Welcome Screen too). Disabled all the Parallels services (there is one that does not begin with "Parallels" but has it in its description a few services down). This allowed windows 7 to reboot and to force Tools to be re-installed.
2. Tools forced a rebooted and it got still stuck on "Welcome" at this point. After 4 safe boots I found that "Parallels Shared Profile Service" was the cause (not sure if the step 1 was really needed but at least I am sure Tools was re-installed). So in short I needed to boot with "Parallels Shared Profile Service" set in manual mode.
3. Once in desktop let windows finish any driver installs (I heard windows dig a few times). During this time I saw "You will be logged out of the system to apply the new shared profiles settings" message box. I did not click this until I was sure Windows 7 was settled down installing whatever it needed. Also, if you leave off "Parallels Shared Profile Service" you will get this message every time you log into Windows 7. So mind the next step...
4. I went into services and set "Parallels Shared Profile Service" auto and started it.
5. I clicked ok on the desktop message "You will be logged out of the system to apply the new shared profiles settings" message box.
6. Windows logged off and I logged back on. All appears well in PD8/Win7 land.
There were many reboots into Safe Mode to turn on/off [only] Parallels Services and then letting Win7 to boot normally to find which services was causing my problem.
PS: So nice to have Chrome running Flash ok but I really would like the last 3.5 hours of my life back.
Last edited: Sep 13, 2012