For those who have managed to get Parallels running on their Mac Pros: At least based upon my experience (and YMMV), I suspect that to avoid kernel panics when launching Parallels 1884, you might be advised to close out your VM but don't quit Parallels. If you restart your VM when Parallels is already open and you have run it successfully previously, the chances are that it should open without a kernel panic. In the meantime, leaving Parallels open will probably not have too adverse an impact on your performance. Also, if you can't get your VM installed with build 1884, try dragging 1884 to the Trash, installing 1848, and creating the VM with the legacy workaround in the Terminal: sudo nvram boot-args="-legacy" [reboot] or, if necessary, sudo nvram boot-args="-legacy maxmem=2048" [reboot] (Don't forget to remove the workaround with sudo nvram boot-args="" [reboot] after you create the VM and before you install build 1884.) I've been able to run Parallels/WXP Home with relatively few problems, but it's possible that my lack of problems may be due to the fact that I installed the VM under 1848 with the 32-bit workaround. (Then again, maybe not—who knows?) Anyhow, that's my $.02 worth.
I know the plural of anecdote is not evidence, but I think you are correct in large part that running in the 32-bit workaround mode is what's preventing your problems. Quitting Parallels or not, I get kernel panics on about 50% of my VM starts/restarts. I got 0% when I was running the release version with the legacy option. Therefore, I've only suffered from upgrading to the allegedly Mac Pro compliant build. Now my problem may be that I have more than 3G of RAM. I have 4, but I've followed the directions and limited it to 4000...
