For those that may come behind and read this message I wanted to follow up on this thread:
Using VMWARE converter inside of Parallels did work. To convert a Parallels VM to Fusion where using the conversion tool for Fusion won't work (for whatever reason I couldn't get it to work):
1. Create a new virtual disk in Parallels large enough to hold all the converted data on your virtual machine. Boot the VM so the disk is mounted and can be formatted to use inside the XP OS.
2. Install VMWARE converter inside a running Parallels system.
3. Remove Parallels tools before proceeding.
4. From inside the running Parallels virtual machine convert the "local" machine to the new large virtual hard drive you just created. This will take a little while but at the end of this step you will have 1 or more vmdk files on the new disk drive.
5. Mount some type of external hard drive (I used a USB drive) and copy all the vmdk files off to this disk.
6. Copy the vmdk files to a directory on your Mac.
7. Create a virtual machine using Fusion and referencing the vmdk files you just copied.
The reason I got into this mess was the fact that Parallels had a production version of virtualization software for the Mac before VMWARE Fusion came out. There are some very nice features in Parallels that are notable that Fusion doesn't have (the ability to use a specific ethernet port for connectivity is one that comes to mind) but the support for the product is lacking. I tried numerous times to get support only to never get any reply from the company. Several calls into the support desk went unanswered. VMWARE has a larger community for help if you need it.
I did convert several of my favorite virtual machines from Parallels to Fusion with success and after weeks of running in Fusion I can report that all is well with them. I've had no issues thus far.
John