Small Business Editions Don't Seem To Work. I got stuck trying to download a more recent version Windows XP Small Business, and Windows 2003 Small Business. Neither were recognized. I found an old version of Windows XP Pro and I realized that I just wasted five hours. It worked instantly. Ugh.
Back in version 1 I had to make an ISO Img. before I could install. I used disk utility the create the file and change the extension to .iso. Then tell Parallels to boot from iso image.