I chose to install manually and fiddled with a few settings like choosing more memory and processors, turned off sharing and some more things...That was my previous experience attempting to use the VHDX to create an updated version. Frankly, that was what I expected to happen this time. For some reason (and as we use a fixed configuration, there were no changes), it worked. I wish I could tell you exactly why but unfortunately, I have no clue. The only advice I can offer is to persevere and one day, for no apparent reason, it'll work. I hope this offers a bit of encouragement if nothing else.
I am running the latest update to Parallels Desktop on a Mac Studio M2 with 64Gb of memory and a 1Tb SDD with the latest MacOS beta update.
Not sure which did it, but the install went forward.
had to manually install the parallels tools but it is up and running....