OK to close this, it is my fault. I assumed I had to set XP display settings to the same as the monitor (1920x1200) but taking it back to 1280x1024 gives good results. I booted up the old Mac to see what i had in the Parallels set up and it is .... 1280x1024. So D'oh. 

Anyway this may be of help to someone else. Here are screenshots at the two settings. The second one is 1280x1024 and looks better than the screenshot in fact. 

I then had to work out how to share files with the Mac - that's not as easy as Parallels which just does it but I've managed it.