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?