It seems that the Windows Phone 7 SDK doesn\'t support running inside a VM. On Parallels, the entire VM simply crashes when the emulator is starting up.
Around the web,
We have successfully deployed, and performance is acceptable in our environment, virtual Windows 8.1 Pro Desktop under VMware vSphere 5.5 (ESXi 5.5), and have the Windows 8 SDK and Emulator working correctly with no performance issues. (In Education - to University Labs for Windows Phone development).
The issue experienced by most, is you most have the Hypervisor pass through the Intel-VT into the VM, to effecticely create Nested Hypervisors. This is possible using VMware vSphere 5.5.
This option is available in virtual machine version 10, enabled in the vSphere Web Client - Enable Hardware Virtualisation.