What you need:
Parallels Desktop for the Mac
Windows XP Installation CD. Bear in mind that an OEM version of Windows from an old computer CANNOT be legally transferred to your Parallels VM.
MacTel. (Get em cheap here)

I. Create a new XP VM
1. Install Parallels Desktop for the Mac
2. Start Parallels
3. Select "New VM..." from the File menu. This starts the New Virtual Machine Wizard. Click Next.
4. Select "Create a Typical VM". Click Next.
5. Select "Windows" and then select "Windows XP". Click Next.
6. Click Finish. This creates a new VM on which you can now install XP.

II. Install XP
1. Insert your Windows XP installation disc
2. Start the VM. You can do this by clicking on the green arrow.
3. The VM is now acting just like a regular PC. Install XP as you would on a normal "PeeCee". On our MBP. This took about 30 minutes.

III. Install Parallels Tools

IV. Batten down the hatches!
1. Run Windows Update
2. Install Virus Protection
3. Install Anti-Spyware
4. Change to Host-Only networking

Fine-tuning:
* Change Parallel's Caching Strategy to increase performance
* Install SupaPDF Lite to enable PDF creation from XP
* Max out your Mac's memory
* Enable Spotlight on your XP VM
* Install Bonjour for Windows to enable bullet-proof printing