Okay, I bit the bullet and totally started over. I mean reformatting the WHOLE hard drive and reinstalling the Mac OS, made a 125GB Boot Camp partition, reinstalled Windows XP SP2 and Parallels v5. And I've done this TWICE so far. Yes, I've been at it the whole day and night (it's 12:55AM as I write this). Everything appears to finally be acting like I think it should be, with one minor exception. In downloading all the windows updates, everything but the SP3 update gets installed. I continue to get this message that says: "There is not enough disk space on G: to install Service Pack 3. Setup requires a minimum of 4 additional megabytes of free space or, if you also want to archive the files for uninstallation, setup requires 4 additional megabytes of free space. Free additional space on your hard disk and try again." I went into My Computer and I see, under Hard Disk Drives, BOOTCAMP(C and LOCAL DISK (G. I have no idea where the "G" disk came from, do you? When I check Properties, it says "File system: Raw" (I assume that means not fornatted, which it isn't) and for "Used Space" and "Free Space" "0 bytes" for both. Questions: Why is Software Updates trying to install on this G drive? How can I change the location of the download and install for SP3? Can this "G" drive be deleted"? Or, should this "G" drive be formated? Why? Like I said, all of the other 179 updates dowloaded and installed as they should have. And the BOOTCAMP Hard disk has Used space of only 10.7GB and Free space of 112GB. No lack of space here.
You're using a Boot Camp disk. A Boot Camp disk applies to the entire physical disk but only allows the virtual machine to read and write to the selected Windows partitions. The Mac partition is part of the Boot Camp disk but the data on it appears to the virtual machine as all zeros and the virtual machine cannot write to it so it can't be formatted. You could make the Mac Partition invisible to Windows by using a utility like iPartition or by editing the MBR using the fdisk command. This will make the Mac partition unusable in Boot Camp as well. I think you can make the same change using Windows in Parallels. My Computer -> Manage -> Storage -> Disk Management. Right click the G partition, select Delete. Parallels will show a message that says the change was made to the virtual hard disk only and not to the actual physical disk so that the Mac partition will still be usable in Boot Camp. This works because a Boot Camp virtual hard disk has it's own copy of the MBR and GPT which it can edit. Changes to the virtual hard disk MBR and GPT copy will go away if you reselect the Boot Camp partition in the virtual machine Hard Disk settings. Do not try to make the change using Windows in Boot Camp. Your Mac partition is not protected there. It is safe to remove the Mac partition there as long as it doesn't write anything to the Mac partition but you can't be 100% sure that it won't. The Mac partition will still exist in the GPT partition table. Making changes to the partition map might make the disk unbootable. Instead, you could use Disk Management to un-assign the drive letter. Right click the partition -> Change Drive Letter and Paths -> select the drive letter and click Remove. Anyway, we should figure out why it's trying to install to the G drive. Run regedit, then look at SystemPartition in HKEY_LOCAL_MACHINE\SYSTEM\Setup. It should be something like \Device\HarddiskVolume# Goto http://technet.microsoft.com/en-us/sysinternals/bb896657.aspx and download, install, and run WinObj.exe. In WinObj.exe, goto \GLOBAL??, sort by SymLink by clicking on the SymLink column title, scroll down to \Device\HarddiskVolume# in the SymLink column. Find the one that belongs to C:. Does it match what is listed in the registry? If not, then modify the registry to match. Then try installing SP 3. The change to the registry is not permanent. I don't know how to fix it permanently and I don't know why this always happens to my Boot Camp XP partitions. For example, my registry says \Device\HarddiskVolume1 is the SystemPartition but WinObj.exe says my C: drive is \Device\HarddiskVolume2. \Device\Harddisk0 in WinObj.exe says \Device\HarddiskVolume1 is Partition1 which is the EFI protective partition and doesn't actually contain any Windows system information. If you want, take a screen shot of HKEY_LOCAL_MACHINE\SYSTEM\Setup and \GLOBAL?? and \Device\Harddisk0.
Before attempting any of the things suggested by joevt, I thought it might be worth trying to boot directly into Boot Camp Windows install and see if SP3 would install in that manner, without Parallels complicating anything. The SP3 was already downloaded from my last attempt to install and when I went to install it through this direct start with Boot Camp - IT WORKED !!!!!