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I was able to get around my issue, with going through the installation, and choosing "manual" I think it was when choosing the windows installer....
I tried the install one last time selecting "manual" install. Dragging the Microsoft file into the installer window. Then it worked.
Have installed Parallels Version 16.5 on an M1 mac mini. Downloaded Windows10_InsiderPreview_Client_ARM64_en-us_21354.vhdx. The installation...