If the Virtual Machine was created using Windows Easy Install or has a VMware SCSI Virtual Hard Disk you need to download the VMware SCSI Drivers and set the vmscsi-1.2.0.4.flp file as the Floppy for the Virtual Machine in the target Virtual Machine's Settings sheet. This floppy image contains the VMware SCSI Disk Drivers needed when booting with the Windows XP CD and you need to press F6 when it says "Press F6 if you need to install..." near the bottom of the Virtual Machine window and it will then prompt for the driver after it continues to load additional files. Just follow the prompts.

BTW You may need to press the Fn+F6 etc. and this can be changed in System Preferences > Keyboard & Mouse > Keyboard > Use all F1, F2, etc....

If the Virtual Machine is not booting the CD/DVD or ISO Image then select the CD-ROM from the Boot Menu.

To engage the Boot Menu and select CD-ROM Drive...

At the bottom on the Virtual Machine Display just above the Status Bar after starting the Virtual Machine it states...

"Press F2 to enter SETUP, F12 for Network Boot, ESC for Boot Menu"

On the Status Bar it states...

"To direct input to this virtual machine, click inside the window."

Now the BIOS flashes by very quick so one has to work quickly however give it a try and if the Boot Menu can't be brought up then the Virtual Machine's .vmx configuration file will need to be edited to slow down the POST and or change the Boot Order.

Okay, click the big Play button on the Virtual Machine Display and then quickly mouse click into the Virtual Machine's Display and then press the Esc key to bring up the Boot Menu and select the CD-ROM Drive. If it boots the CD fine and if the Boot Menu doesn't show because it just goes to quick then try again or...

Look at the Boot Delay section in A Power User's Guide to VMware Fusion and the Virtual Machine Files section in A Beginner's Guide to VMware Fusion on where the Virtual Machine's .vmx configuration file is and add the following lines to the file. TextEdit can be used to edit the .vmx file.

To give more time to engage the Boot Menu add the following...

bios.bootDelay = "3000"

To, one time, force the Virtual Machine into the BIOS to change the Boot Order in the BIOS so the CD-ROM is first add the following....

bios.forceSetupOnce = "TRUE"

Notes: By default in Fusion 1.x normal file based Fusion Virtual Machines are created in the "~/Documents/Virtual Machines" folder and depending on Host OS ver. and or Fusion ver. there may be a .localized after Virtual Machines although by default this extension is not visible in Finder.

~ Is your Home Folder.

Files that comprise the Virtual Machine are placed in a Folder (a.k.a. Bundle and or Package) with an extension of ".vmwarevm" which by default this extension is not visible in Finder.

Example: "~/Documents/Virtual Machines/Windows XP.vmwarevm" would in Finder just look like an icon named "Windows XP".

To view the Package Contents of the "Windows XP.vmwarevm" folder ctrl-click (or right-click) the "Windows XP" icon and select Show Package Contents.

To edit the .vmx configuration file ctrl-click (or right-click) on the "Windows XP.vmx" file and select Open With > Other... then in Choose Application choose TextEdit.

Note: If using Firefox do not copy and paste the parameters if using TextEdit unless you only copy the exact line and nothing else otherwise use an Editor like TextWrangler.

Also...

When using Disk Utility in order to have a bootable ISO Image you should select CD/DVD Master with no encryption in which case by default it will have a .cdr file extension and in version 1.1 of Fusion and later does not need to be changed to .iso although one can if one chooses to. A default .dmg image is compressed and is not bootable although an uncompressed .dmg will boot if changed to .iso and of course the source CD/DVD must be bootable in the first place.

To create an ISO Image using Disk Utility...

1. Insert the CD or DVD disc in your computer's optical drive.
2. Open Disk Utility (/Applications/Utilities/Disk Utility).
3. Select the CD or DVD disc in the list of disks and volumes.
4. Choose File > New > "Disk Image from (Name of Disc)."
5. Type a name for the disc image.
6. Choose "DVD/CD master" from the Image Format pop-up menu.
7. Choose "none" from the Encryption pop-up menu.
8. Click Save.

Also...

Have a look at: VMware Fusion menu bar > Help > VMware Fusion Help > Managing Virtual Machines > Configuring the CD/DVD Drive