Parallels says disk is full during Win XP format

I just downloaded the 2.2 evaluation version of Parallels (on a Gentoo Linux host), and when I try to install Windows XP I keep getting this error during drive format:

Only 113 MB of free disk space remains in the file system. Guest operating system is unable to run until at least 150 MB free disk is available. Please free some disk space.
Click OK if you cleared enough disk space or click Cancel to shutdown the Virtual Machine.

I get this error regardless if I use a fixed or growing disk, and I can't seem to find any other information as to what I'm doing wrong. Does anyone have any ideas? Thanks in advance...

 

One more thing...

There is one more bit of information that I just thought of...

I am running dm-crypt on my main drive for some extra security on my laptop. Could this be why Parallels thinks I'm out of space on my partitions (even though I have 20+ GB of free space)? Just a hunch...