How to install Windows (or some other OS) inside the virtual machine?
In general, the installation of a guest OS inside a virtual machine is similar to the installation on a real PC. General steps for installing an OS from a real CD/DVD or an image file are given below:

Launch Parallels Desktop for Mac, click the Install OS button and follow the OS Installation Assistant’s instructions. If you want to install Windows XP or Windows Vista inside the VM, it’s recommended that you select Express Windows installation. The OS Installation Assistant will install the selected OS in automatic mode.

If you choose the Custom Installation or Typical Installation, follow the steps below to begin the guest OS installation manually:

1. In the Parallels Desktop for Mac window click the CD/DVD-ROM 1 icon in the Resources list. This opens the Configuration Editor window with CD/DVD-ROM options. Make sure that the Enabled and Connect at startup options are selected.
2. Connect the virtual machine to the installation media:
   1. To install from a real CD/DVD: in the CD/DVD-ROM Options window, choose the Use real CD/DVD-ROM option and specify the real drive to be connected to the virtual device in the CD/DVD-ROM Drives list. Then simply insert the CD/DVD with the operating system installation into the appropriate drive of your Macintosh computer.
   2. To install from ISO image file: in the CD/DVD-ROM Options window, choose the Use image file option and specify the path to the ISO image file in the Image File field.
3. Save the virtual machine configuration. To do this, click OK in the Configuration Editor window, then click the Save button in the Parallels Desktop window or choose Save from the File menu.
4. Start the virtual machine by clicking the Start button on the toolbar. Capture the input devices in the guest OS by clicking anywhere inside the Parallels Desktop window. Follow the on-screen instructions.

Some helpful tips:

• To capture the mouse and keyboard input in your virtual machine, move your pointer over the Parallels Desktop window and click anywhere inside the window. You can release the mouse and the keyboard input later pressing the Ctrl+Alt (by default) keys.
• If you have MacBook or MacBook Pro, to press F8 in order to accept Windows License Agreement when installing Windows 2000/XP/2003 inside a virtual machine, you need to press with F8 + Fn keys. This also works for the F1-F12 keys and the Delete key.

How can I upgrade from Windows XP to Windows Vista?
If you have a Windows XP (Home or Professional edition) virtual machine you can "upgrade-in-place" the operating system to one of supported Windows Vista. During such upgrade-in-place only the operating system will be affected, and you don't have to re-install all the applications in the virtual machine.
To upgrade to Windows Vista correctly you should do the following:

1. Launch Parallels Desktop for Mac.
2. Open your VM and log into the Windows XP operating system.
3. Choose Prepare Windows Vista Upgrade from the Actions menu.
4. Then insert the CD with Windows Vista upgrade and follow
5. After all the necessary preparations are complete, the virtual machine will be started automatically.

Upgrading to Windows Vista starts. Follow the on-screen instructions.

What is OEM software, and why won’t it install?
OEM stands for Original Equipment Manufacturer. OEM software is only distributed when it’s sold with a computer. The best example of OEM software is the copy of Windows that comes pre-installed when you buy a new PC. Installing OEM software on another machine usually violates the software’s license agreement and may not work with Parallels Desktop for Mac.

I can’t install Windows XP x64, Windows 2003 x64 or Windows Vista x64 version in the virtual machine. Are there any x64-versions supported by Parallels Desktop for Mac?
Unfortunately, the current version of Parallels Desktop for Mac doesn’t support 64-bit guest operating systems. But we are working on adding the 64-bit support in the future versions of Parallels Desktop.

I follow the instructions from the User Guide to install a guest OS but every time I start the VM it fails to boot from any available device. What am I doing wrong?
If you inserted the disc, turned on the VM, but the installation doesn't start, please follow these steps:

• Step One: please make sure that you really have a bootable CD/DVD disc in your Mac CD/DVD- ROM drive. Don't confuse Microsoft Office discs and alike programs for the bootable disc with operating system installation files. First, you must install an operating system (OS), and then you will be able to install your favorite programs.
• Step Two: The installation CDs for Windows 95/98 are often not bootable. You need a bootable CD or an image of a bootable floppy disk to boot the VM from it, and to partition your virtual hard disk before you can start the installation.
  If you have the correct disc in your Mac drive, make sure that it is bootable. If you have just copied the CD contents like files and folders to another disc, this doesn't make it bootable.
• Step Three: Dust and scratches on your CD can hinder the proper reading of the disc by your Macintosh computer. To fix the problem try cleaning the CD with a clean soft cloth.
  If none of these steps solve your problem, then, most likely, your Mac’s CD/DVD-ROM drive cannot read the disc. Try to create an ISO image of the CD-ROM on another computer.

To make an ISO image of the CD-ROM using Disk Utility:

1. In the Finder open Macintosh HD - Applications - Utilities - Disk Utility.
2. Insert the source CD-ROM (the image of which you want to create) into the CD/DVD-ROM drive of Macintosh computer.
3. Select the CD/DVD-ROM drive from the Disk Utility device list.
4. Click the New Image button on the top of the Disk Utility window.
5. Choose the name and location for the image (you can leave the default settings).
6. Set Image Format to read-only.
7. Click Save and wait till the image creation process is complete.
8. Locate the created image, open its pop-up menu (by Ctrl-clicking the file) and select Get Info from the pop-up menu.
9. Expand Name & Extension section and change the file's extension from .dmg to .iso.
10. Now you can connect this image to the virtual machine’s CD/DVD-ROM drive: launch Parallels Desktop, click the CD/DVD-ROM icon in the main configuration window to open the CD/DVD-ROM drive’s settings, select the Use image file option, and click the Browse button to locate the ISO image file.

You can use a successfully created image file as a bootable media for the guest OS installation instead of a real CD.

If during the image creation I/O errors occurred, this may indicate that there is either a problem with your disc, or your Mac’s CD/DVD-ROM drive doesn’t function properly. Please consult your local Apple Center for solving this problem.

I’ve installed Windows in the VM, but it shows some unknown devices in the system configuration. Where can I get drivers for these devices? Can I install drivers from the Boot Camp?
You don't need to install any 3rd party drivers in the virtual machine because the Parallels Tools package provides all the necessary drivers for the virtualized hardware. Please keep in mind that installing 3rd party drivers may cause driver conflicts and unexpected problems with the guest OS.

To install Parallels Tools make sure that your virtual machine with the Windows guest OS is running and that you are logged in. Choose Install Parallels Tools from the VM menu. The complete setup is recommended.

If you're trying to plug in an USB device for using it in the virtual machine, you should install the drivers for this device in the guest OS.

Are Windows Vista Home editions supported as a guest OSes in Parallels Desktop?
Unfortunately, the license agreement terms of the Windows Vista Home editions do not allow users to install this OS inside a virtual machine. To see the full text of the license agreement, please follow this link:
http://download.microsoft.com/documents/useter...b13.pdf