I'm on Parallels 4 build 3540 and Ubuntu 8.10, and I have this problem too. And so do the posters in another recent thread here:
http://forum.parallels.com/showthread.php?t=31213
Unfortunately the workaround mentioned in that thread didn't work for me. I saw another tip (not in the Parallels forums, but somewhere else on the internets, maybe in an Ubuntu forum) that said to change the last entry in /etc/fstab from this:
none /media/psf prl_fs defaults,share 0 0
to this:
disk0s3 /media/psf prl_fs defaults,share 0 0
This didn't really work for me either, but it did cause the icon for psf to show up on the desktop. (In practice I found that the first word on the line could be anything and it would have this effect.) But it wouldn't let me access files.
Strangely, it would get the sizes of the directories right. If I did an "ls -l" on a known good pathname to a file, it would actually give the proper listing for that file. However, I could never get a directory listing to work, nor could I ever get the contents of any file (e.g. by running "cat" on a known public-readable file).
I've gone back to Ubuntu 8.04 where the folder sharing seems to work just fine.
If you really want to stick with 8.10 you might try the NFS-mount hack I used to use in Parallels 3. Basically you enable NFS service on your host Mac, and then add some entries to NFS-mount those filesystems in your guest. It's a bit tricky but not too bad, if I recall. You have to add the file /etc/exports on the host Mac (and then reboot, or start nfsd manually). Then you have to run the portmapper and add the NFS mounts in your guest, e.g. by editing entries into /etc/fstab. I haven't tried this in Parallels 4 + Ubuntu 8.xx, but this used to work great in Parallels 3 and Ubuntu 7.04 which I used to run.
Seems like a step backwards compared to the shared folder stuff though.