Well, it seems that my problem isn’t with the new version of Parallels Desktop, but with the VM image that I have upgraded, several times.  A little background:  my Windows XP is a licensed copy originally purchased with Virtual PC back in the PowerPC days of Mac.  I imported this image into Parallels in version 2 and I have been using it in subsequent releases of the 3.0 product line without problems.  It seems that the strange mouse and driver problems that I was expericing in the VM are releated to the source of my image – Virtual PC.  I don’t know many specifics, but importing my VM using Parallel’s Transporter seems to have fixed the funkiness and solved my issues with drivers failing to install.  I found this solution and a thread of other users expericing the same problems on the Parallels forums.  Thanks to those users to contributed to this threat!