can't install XP- non-system disk error

Hi,

I am trying to install XP from the installation disk using Parallels 3.0. When I go through the Windows express installation setup, I get an error message that says

Boot from CD/DVD Rom Failed
Non-system disk or disk error

As suggested in other threads, I went to Disk utility and made a new image. IT created a dmg file which I mounted to my desktop. It says it's an ISO image. So I re-ran the XP installation and choose the "USE ISO" option. However, when I browse to choose the image, it will not let me select it to open. But I can see all of the installation files and folders inside.

Suggestions Please! I need to get this working ASAP!