Persistent Blue Screen of Death (BSOD)

Running Parallels Desktop 3.0 Build 5608 Guest OS is WinXP SP2 on MacBook Pro OSX 10.4.11.
The installation is strictly VM no BootCamp.

We are getting a BSOD as soon as the we login into Windows. Attached is snapshot of the screen.

After searching the forums, we've tried:

1. Disconnecting all the Devices before logging in.

2. Wanted to try reinstalling Parallel Tools but can't login to Windows anymore.

3. Installed latest version of MacFuse (since we have gotten a 'There was a timeout waiting for file system" message as well).

We are to the point of considering just wiping the Mac's harddrive and reinstalling everything from scratch.

 

I hope this will help http://forums.microsoft.com/TechNet/ShowPost.aspx?PostID=1215554&SiteID=17