Grand Theft Auto IV in Parallels 8 Not Working

I have a 2011 iMac with a 3.4GHz Core i7 processor and an ATI 6970m GPU with 1 gig of vram.

When I try to run the Steam version of GTA 4 in Windows 7 (using Parallels 8 build 8.0.18483) I get the following error:

Code:

GTA IV FATAL ERROR: D3D Error - Shader Model 3.0 or higher is required

I've maxed out the VRAM to 1024 MB and changed the 3D acceleration settings for Parallels to both DirectX9 and DirectX10 but I got the same error each time. I also verified that DirectX 11 is installed via the 'dxdiag' application in Windows as well.

I'm fairly certain that Shader Model 3.0 is supported by Parallels 8, or am I mistaken?

 

Installed the game in Bootcamp (Windows 7) and now it works just fine when I run it using Parallels.

Still doesn't work using a non-Bootcamp partition running Windows 7 (I get the same error about requiring Shader Model 3.0). I'm assuming it's probably a driver issue.