Windows 7 Ultimate OEM 32-bit installs just fine
FWIW, I just installed a System Builder image of Windows 7 Ultimate, 32-bit version, under Parallels Desktop for Mac 5 and it works just fine so far. I'm running it on an original MacBook Pro that has just the Core Duo processor, so I can only do 32-bit anyway. One thing that I notice is that, if you have more than one core allocated to the VM, then the screen will flash when Aero is operating because the Windows Explorer resets intermittently. If you have only 1 core allocated to the VM, then things seem to run just fine. I notice the same problem when running both Windows Vista and Windows 7 RC under the Parallels 5 beta evaluation. Also, the newer Macs may not behave this way because their WDDM drivers will be different.