I recently upgraded to version 4.0 of Parallels for Mac. Everything went well, with the exception of one minor issue. While upgrading some of my Windows XP guests, the driver for the sound card was not found.
In fariness to Parallels, I use a customized install of Windows XP which was created by using nLite. It allows for faster setup and smaller Parallels images. The catch is that it does this by removing things that are not normally used. Like programs and drivers...
So when I went to upgrade my Windows XP guests to Parallels 4.0, the guest OS couldn't find the sound card driver. Normally this driver is included, but I believe it was stripped out by nLite.
After trying the usual tricks (uninstalling the device, searching the Windows XP CD, etc...) nothing worked.
Fortunately I was able to locate the driver that is needed to work with Parallels. It is an Intel 82801 AC97 Audio driver. I was able to download a free copy of it from DriverGuide.com. Installed fine, sound works great now!