Make sure you have a backup of your VM before you let Parallels start the conversion from version 3 to version 4.
The conversion of my Win2K VM went well. The conversion of the WInXP VM crashed and when I tried to open that VM again Parallels crashed repeatedly.
Fortunately I have backups of my backups so I’m covered.
This evening I’ll restore one of my backup copies of the VM and try again. Updates will follow.