Need help with Parallels connection problem

When I launch Parallels 5.0.9220, I get an error dialog stating: "Connection failed, The server may not exist or it is not operational at this time. Check the server name or IP address and your network connection and try again."

This happens when PD is launched, before opening the virtual disk and started after I upgraded to 5.0 from 4.0. Other than that, Parallels operates correctly and so does the virtual disk (Windows XP) with good wireless Internet access. The dialog times out (stops displaying) after appearing about 5 or 6 times. I think I have tried all the suggestions on this forum for similar problems with no success. I have no idea what to do at this point. Help.....

Also, does anyone know how to remove duplicate hdd image files which appear in the "Source" popup menu under Configure->Hardware->Hard Disk 1 page?