You need to boot the Virtual Machine with the Windows XP CD and do the following: How to recover from a corrupted registry that prevents Windows XP from starting
You will also need to read the following and may need to use some of the other information below.
Windows XP Recovery Console
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Also if your Host OS is OS X 10.5.x then you may need to temporarily disable F8 for Spaces in OS X System Preferences > Mouse & Keyboard > Keyboard Shortcuts or under Expose & Spaces > Spaces as you will need the F8 Key to get into Safe Mode
Also under OS X System Preferences > Mouse & Keyboard > Keyboard > Use all F1, F2, etc. check box
Also using the "fn" key, e.g fn+F8
You can also look at VMware Fusion menu bar click VMware Fusion > Preferences... > and uncheck Enable Mac OS keyboard shortcuts (For Fusion 2.x Keyboard & Mouse > Mac OS Shortcuts > uncheck Enable Mac OS Keyboard Shortcuts)
I'm mentioning all the various keyboard related items because depending on how you may have any of these configures can/will effect just how you get F8 to function in the Virtual Machine for being able to boot into Safe Mode.
Note: For Recovery Console or Repair Install if you're using VMware SCSI Virtual Hard Drive you will need to use the VMware SCSI Driver from VMware's Web Site.
If you used Windows Easy Install and or you're using SCSI Virtual Hard Drive then you need to load the VMware SCSI Drivers when booting from the Windows Install CD by pressing F6 at the appropriate time as noted on the bottom of the Virtual Machine display during this process.
You can download the VMware SCSI Driver Disk from VMware and assign the .flp to the Floppy
You can the assign the "vmscsi-1.2.0.4.flp" to a Floppy Drive by adding it to the Virtual Machine via the Settings sheet. Have a look at:
Fusion 1.x: VMware Fusion (menu bar) > Help > VMware Fusion Help > Managing Virtual Machines > Configuring a Floppy Device
Fusion 2.x: VMware Fusion (menu bar) > Help > VMware Fusion Help > Managing Virtual Machines > Managing Other Devices with the Settings Window > Configuring a Floppy Device > Adding a Floppy Device
Fusion 3.x: VMware Fusion (menu bar) > Help > Search > type Floppy and then select Add a Floppy Device
This floppy image contains the VMware SCSI Disk Drivers needed when booting with the Windows XP CD and you need to press F6 when it says "Press F6 if you need to install..." near the bottom of the Virtual Machine window and it will then prompt for the driver after it continues to load additional files. Just follow the prompts.