I am sorry, but I can't help but be surprised at how unhelpful Parallels support has been here ...and they've missed a feature of their own product that'll do just what the OP wants! Wow...
Here's what you do to get your disk to fit the actual size used and not the total unformatted size...
1) Goto Macintosh HD>Applications>Parallels>Parallels Image Tool
2) Click Continue
3) Click Browse button and locate your disk image, then click Continue
4) Click the circle by Manage Disk Properties and click Continue
5) Put a check by Convert to Expanding and click Start
6) Once this process finishes, top it off by compacting the image
7) You should now have a image that matches the disk space used, not the total unformatted capacity
I cannot believe that support missed this and instead repeatedly told you to try compacting again...I hope this helps....
P.S. If you do not see these options then you need to upgrade your copy of Parallels, you can do this by opening Parallels and then on the toolbar going to Help>Check for Updates and just follow the prompts, you may need to do this more then once to obtain the latest copy (and once you have the latest version you should also install the latest version of parallels tools in your Windows VM which is done simply by clicking (Toolbar)Actions>Prepare Parallels Tools Upgrade when you have the VM config open but the VM is not started, then when the VM starts the tools upgrade process will start automatically once you login)
Last edited: Aug 22, 2008