Microsoft Security Essentials (MSE)???

Rule of thumb: the antivirus software on your host computer (in this case, Sophos Anti-Virus Home Edition) will not protect the guest computer (in this case, Windows XP Pro) — and vice versa, Microsoft Security Essentials on Windows will not protect the Mac. 

Being without antivirus software on either computer would be risky. 

Depending on the level of host/guest integration provided by the VM software (in this case, Parallels Desktop for Mac), files in certain areas may be protected by both computers. Dual protection of this type is OK, if there is no contention. 

To avoid contention: configure at least one antivirus software title to not automatically move, remove or disinfect files that present a threat.

I'd say, most important is for access to the threat to be denied in both computers, then you (the user) can use your preferred computer to deal with the threat. 

When you're happy with your configuration, you can use the test file provided by eicar to verify that the two computers play nicely with each other in a threatening situation. 

Thanks for answering,  Grahamperrin;

You gave me a bag full of info and got my mine spinning somewhat,  for example - it seems to me Sophos "defaults" to your recommended setting,  doesn't it?  Now I wonder what Sophos does when it encounters a threat - I assume I'll get a pop-up message giving me choices to deal with the threat,  right? 

So in my case I have your suggested advise of one AV (Sophos) NOT to auto move or disinfect the treat;  I think I got it,  thanks!

Rod