AH HAAAA!
Fixed mine. Please forgive my repeating previous advice. I had read this and other threads and had missed a few steps. For your own info if this helps.
The issue for me: I updated from Parallels Desktop 3 to Parallels Desktop 4 on the mac. I lost working audio on my Window XP VMs. I had the garbled audio problem many have noted. Bad drivers were the issue. Audio worked before. Audio failed to work after!
I am running some newer WinXP VMs - WinXP SP3, built from slipstreamed install discs/iso files, which seem to be missing the older Intel AC'97 audio drivers, but DO include the newer Intel AC'97 + RealTek AC'97 audio drivers and software codecs. I could not totally remove them manually not knowing which files to delete. By installing the RealTek AC'97 drivers using the RealTek driver installers, I was then able to UNinstall the RealTek components and by extension all remaining RealTek AC'97 drivers. YMMV on this one.
Additionally - I have an older Windows XP SP2 machine used for QuickTax that was imported to Parallels using Transporter that does have proper working audio, and I noticed that the audio device registered as the "Intel(r) 82801BA/BAM AC'97 Audio Controller". If you don't see the audio device detected as that (as repeatedly suggested before me in this thread), then you will not have working audio due to either the mismatched RealTek drivers, or lack of existing drivers. That is the hardware being emulated. NOT the RealTek AC'97
I must note for the record. *My* WinXP install media did NOT have the proper drivers. There *are* differing versions of WinXP install media due to differing Service Packs, slipstreaming options, etc. Some of this may not make sense to the non-window experts here, but MS does issue differing version of the same OS depending on where and when you got your install media. I have lots of TechNet media from MS, as well as Developer disk sets (MSDN). They are valid installs of WinXP, but the contents vary, adn thus are missing some drivers.
Perhaps this is why some of you are not finding drivers.
Solution - I did the following:
1) Uninstalled all RealTek drivers, rebooted
2) Uninstalled Parallels tools, rebooted
3) installed Parallels Tools, rebooted
4) Had all WinXP CDs handy, for when hardware detection took place.
Nothing above resulted in a working Audio setup.
What worked:
See if you have these files:
c:\windows\inf\wdma_int.inf
c:\windows\inf\wdma_int.pnf
If you do, it's possible you can point to these files when installing the audio and you will get the proper drivers installed. If you are missing these, you won't get your audio back (yet). If your WinXP install media are missing these files, you will not get your audio back (yet). If you can find the individual files, you may be in luck.
The list of files I collected to reproduce a successful driver install are as follows:
08/17/2001 07:20 AM 96,256 AC'97intc.sys
08/04/2004 01:07 AM 60,288 drmk.sys
08/04/2004 01:15 AM 140,928 ks.sys
08/04/2004 02:56 AM 130,048 ksproxy.ax
08/04/2004 02:56 AM 4,096 ksuser.dll
08/04/2004 01:15 AM 145,792 portcls.sys
08/04/2004 01:08 AM 48,640 stream.sys
08/04/2004 02:56 AM 23,552 wdmaud.drv
08/28/2002 08:02 PM 24,371 wdma_int.inf
03/26/2005 06:35 PM 44,908 wdma_int.PNF
The dates and files sizes may vary, but the INF and PNF files must match. I put these files into a folder and dropped the folder onto each VM that was having audio issues. I pointed the driver install to the INF and now audio works again. For copyright reasons I cannot post them here, but perhaps this will help you find out where to locate them bit by bit if all else fails. I did not locate a working Intel Driver installer, so perhaps someone (Parallels support!) can post a working link to the proper Intel driver installer?
Cheers!