More Parallels and Bootcamp questions

I have read posts that say Parallels *can* use the Bootcamp partition, but it seems like one does not have to. I asks this because I was originally thinking (before I had any idea what was involved) of having a partition for XP for my older applications and one for Vista to get some of the added features that come with some app run in Vista (like Quicken has) but it doesn't look like Bootcamp supports a third partition as far as I can tell, so ...

Can Parallels install an OS without need of another partition (which, I understand, could only be used virtually) and will it work normally, meaning I can install applications and use peripherals normally, I just can't boot to it directly?

I was thinking of using XP under Bootcamp and just run Vista virtually. Or would the reverse be better? And can you back up the data of a virtual-run OS to an external hard drive?

Thanks

That is correct, while you CAN use Parallels to access a Boot Camp partition, you do not necessarily HAVE to. Just create a new virtual machine and install whatever you like.

Remember, you don't need Boot Camp to use Parallels. You can make as many virtual machines in Parallels as you like. You can have five separate installations of Windows XP, two of Vista, and a dozen different Linux distros if that tickles your fancy.