Parallels 5 Help!

I've recently updated to Parallels 5 from Parallels 4, and now my XP is running extremely slowww, Snow Leopard also when its running.

I'm using a Mac Mini:
Processor 2.26 GHz Intel Core 2 Duo
Memory 4GB 1067 Mhz DDR3

In the Parallels preferences I have the memory set to "Automatically" (Optimizes the memory usage for best performace)
I also have the option to manually allocate the memort from 96MB to 3072MB.

Under the 'Virtual Machine Configuration :Microsoft Windows XP
the Main Memory is set to 1024MB and 2 Processors.

If anyone could help me out I would really appreciate it. I'm guessing I have a setting wrong or something?

Thanks in advance.

 

Please do the following:
1. reinstall guest tools (menu -> Virtual Machine -> "Install Parallels Guest Tools")
2. check CPU usage / Disk I/O in Mac Activity Monitor after 3-5 minutes after VM booted. Do you significant CPU/IO resource usage?
3. Generate problem report via Parallels menu: Help -> Report a problem and post report ID here.