Last week, Parallels announced a of their  virtualization software, which lets owners of Intel Macs run almost any version of Windows within Mac OS X. At the time of the announcement, I was already working on a revision of my book " ." Now, I have to add quite a few more pages: this update is a doozy.
The most significant of many new features in Build 3036 is that Parallels can now directly run a copy of Windows XP you've installed using Boot Camp, rather than requiring you to create a new virtual machine with its own Windows installation. This beta also adds a resizable main window with automatic adjustment of screen resolution; support for migrating an existing Windows installation (including one made using Virtual PC) into Parallels; drag-and-drop between Windows and Mac OS X; a feature called Coherence, which effectively lets Windows applications "escape" the Parallels window and coexist alongside Mac OS X windows; and numerous other improvements.
Until now, people wanting to run Windows on a Mac had to make a potentially difficult decision. They could install Windows under Boot Camp, but this requires rebooting to switch operating systems. Or they could install Windows under virtualization software such as Parallels Desktop, which runs within Mac OS X but not quite as fast as under Boot Camp; it also lacks support for 3D graphics and some peripherals. There was no way to use a single installation of Windows under both Boot Camp and Parallels Desktop, so anyone needing both environments had to install Windows twice. Doing so not only required considerable disk space but also raised potentially thorny issues of licensing and activation. The standard Microsoft End User License Agreement (EULA) for the retail versions of Windows XP doesn't officially allow a single copy to be installed in both ways on the same computer. Even if someone chose to ignore that, though, the Windows activation mechanism would cause problems. After activating a copy of Windows with a given Product Key in one environment, you'd be unable to activate it again in the other environment, even though they both existed on the same physical computer. Some people said they were able to resolve the problem with a phone call to Microsoft, but if you go by the letter of the law, Microsoft expects you to purchase two separate copies of Windows to use them in this fashion.
This new beta promises to change the equation. After installing Windows XP in Boot Camp as usual, you can now install a package called Parallels Tools for Boot Camp (linked in the initial forum post about the beta). Then, when you reboot in Mac OS X and run Parallels, you can set up a new virtual machine that uses your Boot Camp partition, rather than a disk image, as its storage space. And in theory at least, that's that: you have one copy of Windows you can use in either of two ways. If this scheme is successful, it effectively means you can have your cake and eat it too. (You will, however, have to trade the dynamic resizability of Parallels Desktop's disk image files for the static Boot Camp partition sizes.)
Unfortunately, this beta version hasn't licked the activation problem yet; in fact, it seems to have made it worse for the time being. At issue is the fact that when you activate Windows, you activate it only for the hardware on which it's currently running. Try to use a copy of Windows with the same Product Key on different hardware, and Windows assumes you're installing it on a different computer (in violation of the EULA); this prompts the reactivation message. Because Parallels Desktop emulates some of the virtual computer's hardware, from the perspective of Windows, the computer it's running on when used with Boot Camp is much different from the computer it's running on under Parallels Desktop.
As a result, the Parallels discussion forums have been overflowing with complaints that tend to run like this: After installing Parallels Tools for Boot Camp and setting up the new virtual machine, a user is asked to reactivate Windows - usually requiring nothing more than clicking a link, though sometimes a phone call to Microsoft is apparently needed. (This much is documented in the beta's release notes, and should come as no surprise.) However, when the user then reboots directly into Windows using Boot Camp, Windows again asks to be reactivated. For some users, at least, this process continues every time they switch between Boot Camp and Parallels Desktop. Although many people would willingly endure a single reactivation request, having to reactivate each time is highly problematic, especially when it takes a phone call to do so.
Similarly, Parallels provides no way as yet to move an existing copy of Windows installed as a virtual machine to a Boot Camp partition, with or without the need for reactivation. So if you've already installed Windows in Parallels Desktop and hope to move to the new system, it may require considerable effort.
Of course, this is a beta version, so some problems are to be expected. A Parallels representative indicated that they're working on the reactivation issue. It's unclear when or how they'll solve it, but participants on the Parallels discussion forums have frequently referred to this difficulty as a "show stopper," so I expect it will be a top priority. This beta version also appears to have significant problems when used with Windows partitions formatted as FAT32 volumes rather than as NTFS; Parallels says that's a bug they're also looking into.
Although Parallels has not predicted when this new version will leave the beta stage, they have said that it will be a free update for existing users, and that an even bigger upgrade - version 3.0 - is due in early 2007.