Yeah, I used Parallels on my previous Mac, a Quad MacPro. It ran OK, I suppose, so I could do that. It’s certainly convenient enough, but it doesn’t claim enough RAM for itself to suit me. IIRC, it only accesses 512MB.
But now that I’m running Leopard, I have Boot Camp, so that might change things. I’ll have to noodle that for a while, poke around in Apple Discussions to see what the pitfalls are.
I don't believe the current Fusion or Parallels is limited like that. I run XP in 1-1.5 GB right now on Fusion depending on my needs, and it will even let me choose how many cores I want the VM to use (but I am limited to two on the iMac).