I poked around the Parallels forums and found a thread where someone was having the same problem and successfully resolved it. For some reason the problem occurs when the memory allocated to the VM exceeds 512MB. Reducing my VM memory to 488MB resolved the issue for me.
Poking around the forums some more I found this posting which claims the problem is with Linux.
The RAM issue relates to the intel chip. you need to change the grub script in the boot loader. to do this, boot linux with 512mb, then edit the /etc/grub.conf file. on the kernel line, add
then you’re good to go and can boot with as much ram as you like.
The problem is not with Parallels but is a limitation of the Linux kernel and the original PC BIOS specification. Once I added the line above I was able to boost with over 512MB of RAM.
I was successfully able to install and run Fedora Core 5 in a Parallels Desktop for Mac VM on a 2GHz MacBook with 1GB RAM.