I just had a similar issue. I installed Parallels on a coworker's computer and did an XP install. It worked great for the last several weeks. It stopped working on Sat (10/13). He called up saying that it will not allow him to use Windows. It is giving the following error when starting Parallels:
"Unable to open VM Configuration file" and lists the file location. It is trying to open the .pvs file.
I noticed that when Parallels starts, it only has the memory component listed in the configuration Window. On my laptop (configured almost identical to his), it lists the memory and then a list of other hardware components before it starts up Windows.
He mentioned that Parallels was asking to download an update. He said he tried to download the update, but that it timed-out several times and never got to the install point.
I went directly to the "Parallels Desktop program" under "Applications," rather than using the Windows XP icon on the desktop. When I try to open that it asks for a Windows License Key. So I'm assuming that I may have to reinstall Windows XP.
I am familiar with the Mac OS, but very new to Parallels. I'm not sure what to check next.