I found the solution in another post on the forum finally. Seems there is a bug in the Audio for the latest VMWare Fusion 2.0 Here is the link Audio Driver

Hey everyone! I have been scratching my head at this one for weeks. I found the problem in my particular case. When you reboot your Mac, if you have a Logitech (perhaps other also) microphone in the USB port, when you start VMWare Fusion, you get no audio. The device appears to be working properly, however, no sound is present. This problem is corrected by unplugging the USB microphone before you need to reboot, and plugging it back in after Fusion starts back up. Fusion is able to detect the new presence of the microphone after you plug it in after already started. Hope this helps SOMEBODY out there, as this has been frustrating for me for a long while now.

This problem can also occur with having a phone connected to the USB port while doing a reboot of the Mac. I have tried reboots with an iPhone 3GS connected and, separately, with a Blackberry 8830 connected. But I have not determined which of them caused the problem as I was not using Fusion and Windows XP SP3 at the time, so wouldn't have noticed.

The cure is simply to make sure the phones are disconnected and do a reboot. Of course, if you need to do a reboot at any time you are best off not having your mobile phones attached and the problem won't then occur.