I upgraded to build 1970. I downloaded RC 1 from MS. I copied RC 1 to DVD. I entered through all the forms on Parallels, entered the RC 1 product key, set the install to read from my iMac CD/DVD drive, and hit go. The VM begins to run, however when the VM tries to read the drive I get a non system disk error. Has anyone else run into this problem and has was it solved?
RC 1 of what? (I'm presuming Vista. Note that RC 1 is quite old.) You say you copied it to DVD. If you created a DVD with a single file on it with a name that ends in .iso, you did the wrong thing. You need to burn the .iso file as a DVD.
