This is still a persistent problem under Parallels 3.x (latest build installed). I just tried updating Apple Safari and iTunes under Windows XP under Parallels and with the OS X desktop icon showing over 200MB free on the Windows disk, Windows still complained that there was only 14MB free on the disk and refused to install the iTunes/QuickTime update! Apparently Safari was successfully updated. There is no way in heck that ALL of a 10GB virtual disk is being taken up by the Windows XP image. I've tried every possible setting related to Windows' virtual memory and I still get low disk space and low virtual memory messages. This has been a persistent problem for about the last three Parallels 3.x updates. I've already switched to VirtualBox to run Linux because Parallels can't seem to do it any more and it looks as though I'll have to use VB to run Windows XP now.