Judging from your description, you did not set up the proper boot order, so the virtual machine starts booting from the hard disk and you see start-up screen. At least it seems so, sorry if I got it wrong.
So, do you mind clarifying the following?
1. First of all, you would need to insert the Windows XP installation CD. Note that it must be the same Service Pack level as the Windows you have installed.
2. Change the boot order in Parallels Desktop Configuration Editor. Check
here how to access it.
3. In Configuration Editor, navigate to "CD/DVD-ROM" -> "Options" -> "Boot" and then set the boot sequence to CD-ROM, Hard Disk, floppy.
4. Close the Configuration Editor, stop and start the virtual machine and press any key at the very start of VM loading.
(you will be asked to, "press any key to boot from the CD").
After that, you should be able to follow the article:
http://kb.parallels.com/en/5138
If I misunderstood you and you have tried this already, there is an alternate way, if it would seem that the guest OS is corrupted beyong repair:
1. Create a new virtual machine and install Windows in it.
2. Shut down the VM and open it's Configuration Editor. Add a second hard disk pointing to your old .hdd file.
This way you would have two disks in your VM, C:\ - the new one with Windows installed and D:\ with all the old data.
All the programs would have to be reinstalled though.