Sparse Bundle
If you place your Parallels image on a sparse bundle, it will be able to get backed up by time machine appropriately, but I have no idea what it would do to performance on a virtual machine.
I have used it with entourage and it works very well, but that is on an 8 core mac pro.
Anyway, it would be pretty easy to do and test, so it is worth a shot.
Open Disk utility, hit the "new image" button.
Set your Volume Size to larger than the size of your virtual hard drive
Set your image format to "sparse bundle disk image"
Click create
Copy the parallels files to the new image, edit the virtual machine settings, point the hard drive to the copy, and see how it goes.
If it doesn't work, no harm done, change the virtual machine back to the original hard drive, and delete the sparse bundle.
here are more detailed instructions for entourage that could be helpful if you need more details
http://www.macosxhints.com/article.php?story=20080605115101581
Last edited: Nov 22, 2008