Installation problem with current gen MacBook

I tried helping a friend install Parallels 3 on his MacBook core2 duo 2 GHz with 2 GB ram. He wants to use Parallels with his boot camp partition. The installation appeared to go okay and disk permissions were repaired but then trying to launch into XP through Parallels a message comes up that hardware has substantially changed and XP needs to be authenticated. When XP gets to the authentication screen the key board on the MacBook appears to be frozen. Ie no number or letter can be imported into the XP screen.

Any suggestions on who to resolve this?

The version of Parallels was a purchase from a retail store in September.