Yeah, this came to me when my kernel panic occured and I started having weird behavior with some file. Disk utility indicated a bad volume. So it booted off the CD and let disk utility do its thing to fix it. Interestingly, I had 2 partitions on that disk, one of them was created by boot camp. The other volume was fine. Also, I am using a file vault for image for my home directory, and that was untouched also.
So, theoretically, since the kernel panic occured and trashed the volume on which the virtual drive was residing on (and did not trash my file vault image), I figured that using a sparse disk image and installing the virtual drive into the disk image will contain any possible volume corruption to the mounted disk image. Once Parallels resolves these kernel panics, you can then copy your virtual disk image out of the sparse image file. Plus -- just in case -- once your virtual disk is fully configured, simply make a copy of the sparse disk image so you won't have to reinstall yet again.
Anyways, based on my observations, this should help protect your primary system from corruption.
Last edited: Apr 11, 2006