Be advised that if your Virtual Machine fails to upgrade successfully you can try the following workaround that proves to be effective in some cases: start Parallels Desktop, go to Configuration Editor (Virtual Machine => Configure), and select OS Type: Linux, OS Version: Ubuntu Linux, then try running the upgrade process again.
Should this fail to resolve the issue please follow these steps:
-downgrade to Parallels Desktop 3 (Uninstall Parallels Desktop 4, the install Parallels desktop 3. you can get the latest build of Parallels Desktop 3 here:
http://www.parallels.com/download/file/v3/en/GA/Parallels-Desktop-5626-Mac-en.dmg);
-make a copy of your backup Parallels Desktop 3 Virtual Machine (just in case);
-launch your backup Virtual Machine. uninstall Parallels Tools version 3.0, all antivirus software and custom drivers (drivers that were not a part of Windows installation). this step is critical - for example, anti-virus software can mistake Parallels Desktop 4 components being installed for malware and prevent them from being installed successfully, thus crashing the upgrade;
-uninstall Parallels desktop 3 per the instructions laid out in the following KB article:
http://kb.parallels.com/en/4790
-install Parallels Desktop 4 (please install the latest build, you can get it here:
http://download.parallels.com/deskt...tfix1/Parallels-Desktop-4.0.3540.209168.dmg);
-create a custom new Virtual Machine, using your .hdd file as the hdd image file for the new one (start Parallels Desktop 4, select File => New Virtual Machine, click Skip Detection, select the corresponding VM type, select 'Custom', follow the steps of the wizard and, when prompted for Hard Disk options, select 'Existing image file', click 'Continue' and locate your .hdd image file).