If you need copy and paste between OSX and Windows XP I recommend that you don't install SP3 yet. It seems to break copy and paste in Parallels. I just returned to my backup copy of my XP virtual machine and copy and paste immediately started working again.
Copy & Paste between OS X and XP works for me (Parallels 3 build 5584, Boot Camp 2.1, Windows XP SP3). I suggest you reinstall Parallels Tools or check its settings.
There's nothing wrong with my Parallels or Parallels Tools installation -- but I'm not using Parallels with Boot Camp, that may be the difference.
