Error Compressing the VM

Does anybody else get error code 496 when trying to compress a VM instance? It says that the compress fails due to having a corrupted disk or snaps shots.

I am running an encrypted VM of Windows 7 via Parallels 7 which has the most recent update installed. Before today I also had smartguard enabled and had some snapshots.

I am running this on a macbook air with the smaller hardrive - 128gb. The VM instance has gotten up to 60gb so I was basically left with no extra hard drive space. I first tried to run the compress tool but it said it could not since there were snapshots. When I tried to remove the snapshots via parallels manage snapshot feature, I was told there was not enough hard drive space to merge the snapshots. I tried to unencrypt the drive but again there was not enough hard drive space. I freed up about 6gbs of space and tried these steps again but they still failed.

So, in all my genius, I found where the pvm file was and went throw the show package contents option. From there, I deleted the snapshots folder and the snapshots.xml file. When I went back into the snapshots manager, it no longer showed any snapshots. When I ran the compress tool, it did begin and ran for about 15 minutes before erroring out on the aforementioned error. I have looked to see if there are any other orphaned snapshot files but I cannot see any. I tried creating a new snapshot and then deleting it but still got the same error message after trying to compress.

Any ideas? Any other locations where snapshot files are stored? Any way to force removal of all snapshot files via the terminal?

EDIT: Also, no problem booting into windows 7 so I do not think the file is corrupt

Thanks!
-C