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Thanks to John Lowry for the inspiration!
I removed the USB controller in my VM configuration, and it started up just fine. Keyboard and mouse both work the way they should.
John, you can re-install Parallels Tools with this workaround.
And, Parallels: I'm a willing tester for fixes!
How does removing the USB controller affect any other USB devices - scanner, printer, external drives?
Good idea but it doesn't work for me.
Couple of more notes:
- This only happens on my Win7 Ultimate VM with parallels tools. No other VM is affected.
(Solaris, Ubuntu, BT4, WinXP, WinME, BSD)
- Starting Win7 in safe mode seems to work, but it has to be "Safe Mode" and
not "Safe Mode with networking", etc.
My situation seems a lot like Fred Hall's back on April 18.