I've had the same problem. I'm also having trouble downgrading to 1970, because after I install 1970 it tells me my drivers are incompatible.
Yes. There are a number of threads already devoted about this. Basically you need to press F8 during boot up and start XP up in safe mode. Then install the Parallels Tools there and reboot when it finishes. After that, the VM should boot up fine.
I also have this problem. I hold down F8 when booting the virtual machine, but this won't boot windows into Safe Mode - it just goes straight to the black screen. Is there any other way of booting into safe mode?
Booting in Safe Mode and installing Tools there, then restarting worked perfectly for me. Thanks! (I was able to boot in safe mode because after resetting XP in parallels, it automatically asked me if I wanted to boot in safe.)