Virtual Machine conversion problem on upgrade to Parallels 8

We had Mac OS 10.5 and Boot Camp/Parallels 3 installed on on my wife's MacBook Pro; the windows XP install is on a partition of hard drive. Parallels worked fine.
Updgraded Mac OS to 10.6.8, but then could not install Parallels 3 (not compatible) and could not launch windows from the boot up (the computer tried to start Win XP, but then flashed the "autochk fail" message and reverts to overall computer reboot - see here for requested help)
Performed a trial install of Parallels 8 today to see if that would resolve the problem. Still have the same error on Windows XP partition bootup (autochk problem as noted above). Tried launching virtual machine in Parallels - it tells me that the Boot Camp virtual machine needs to be upgraded to work with the current version of parallels, but it shows this error message: "Failed to convert the virtual machine - the virtual machine could not be converted to the new format". The Help ID says to restart Parallels and try again, but that doesn't correct the problem.

Any suggestions?