Dear reader, I've had this problem before, but with Windows ME running as a guest OS (see this thread forum.parallels.com/showthread.php?289634). I had no luck getting help from these forums. Taking an initiative I decided to purchase a copy of Windows XP (Home Edition, 32 bit) and try that instead of ME. I am having exactly the same issue. I have already installed Parallels Tools and that did not help. My setup is PD7 on OS X 10.8.4. This is the external disc drive I'm using: amazon.co.uk/gp/product/B008Y6SH02 (I'm using a rMBP, so there's no native Superdrive). The specific error I get when trying to connect the disc drive is 'Unable to connect CD/DVD 1. A file or device required for the operation of CD/DVD 1 does not exist or is used by another process, or you have no permission to access it. The virtual machine will continue running, but the device will be disconnected.' Equally if there was a way, a driver you know of, to directly access the disc drive via USB [Universal Serial Bus (USB) Controller] that would be great! PLEASE respond. Thanks.