I found this very handy hint on how to increase the size of a Parallels Windows VM.

The problem I encountered mostly was that I could use Parallels Image Tool to expand the size of it but then Windows would not see this, and just see it as unpartitioned space. If I partitioned it it would then just become another drive, rather than expanding the existing drive.

Over at the parallels forum there is a great work around this, and I can testify with my new 50GB VM that it works a treat!