Symptoms
When you upgrade your Parallels Desktop version 3 up to version 4 you might see the "Conflicting virtual machines" dialog:
It means, that you have not properly shut down the virtual machines listed in the window prior to launching Parallels Desktop version 4 installation.
Resolution
To resolve the problem, please, take the steps below:1) Start Parallels Desktop, launch the virtual machines in question, start and stop them in ordinary manner. Make sure the status of the machine is shown as "Stopped".
2) If this does not help, please, open the Parallels folder: by default it is placed in one of the following directories
/Users/<you user name>/Documents/
/Users/<you user name>/Library/
3) Find the correspondent virtual machine's folder (Microsoft Windows XP in our example)
4) Delete the files with .mem and .sav extensions
5) Open Terminal application from Finder -> Applications -> Utilities and copy/paste there:
cd Documents
6) Copy/paste the second command
rm -rf .parallels-vm-directory
7) Try to launch the upgrade once again. Now the "Continue" button should be available.