Don't just look at what Activity Monitor shows for the "VMware Fusion" process as that's just the front-end, more importantly look at how much real memory the backend "vmware-vmx" process is using. You might even want to keep Activity Monitor open, rack by "Real Memory" descending (so the vmware-vmx process it near the top) and see if and how the "vmware-vmx" process grows beyond the amount of Virtual Machine's allocated memory keeping in mind that it should show a bit more to begin with for the vRAM cache. So if the Windows XP Virtual Machine is set to 1024 then with the default 128 MB vRAM the Real Memory for the vmware-vmx process will should around 1152 MB and see if it grows way beyond that and how much beyond that. Let us know.
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