You can not use DVD or CD Sharing with MacBook Air to install Bootable OS CD/DVD Discs. You will need to use the MacBook Air SuperDrive or create an ISO Image on another system and copy it to the MacBook Air and install from the ISO Image.
Note: 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 from the information posted in this Forum since the MacBook Air became available it is safe to say that there is an issue, and by now be considered a known issue, with the MacBook Air and the External CD/DVD Drive in that if the Drive is not present then one must either set the Virtual Machine's CD/DVD to Disconnected, or to an ISO Image or remove the CD/DVD from the Virtual Machine's Settings sheet and in doing so the Virtual Machine should be able to start without crashing!
Have a look at: VMware Fusion menu > Help > VMware Fusion Help > Managing Virtual Machines > Configuring the CD/DVD Drive
