During installation of a package which replaces files which are open and not readily closed which the system is active, is used the locked file device driver/executable pair, ibmlanlk.sys / ibmlanlk.exe. VM reboots and we get the usual messages ... Processing Locked Files... Processing Complete and the system hangs. After forced new reboot we get the message... IBM Locked File Driver is loaded... and system hangs again. The problem is that the processing of locked files are not really completed and we have to run the executable again manually to correct this situation. With ALT+F1 when booting, then with the F2 option, execute in command line... c:\os2\install\ibmlanlk.exe c:\os2\install\ibmlanlk.lst I don't know what is the cause of this. The problem exists with virtual disk expanding formatted or plain formatted. Any ideas?
Problem resolved! Install OS/2 using a plain virtual disk and HPFS file system. OS/2 doesn't like expansive formatted virtual disks with your only FAT16 option for file system. I think this should be recommended in the Parallels manual. OS/2 installation is extremely sensible to hardware issues.
I've never ever tried to use other than HPFS with OS/2 guest. It is really really cool FS. No comparison with FAT.