Just FYI -- In every case I have seen, you will see a performance gain in switching to Parallels 5....
But to answer your question, what applications are you running? That is a fairly important issue here...
But, with the 2Gb of RAM, you will want to probably allocation between 512 and 768 Mb of Ram. Defintely no more than 768. Please start at 512 Mb, and slowly work your way up to a max of 768.
Why? You are basically reserving up to 1 Gb for the Mac OS... Within the 1 Gb "free", Parallels will consume some memory, leaving up to 768 MB of Ram for the Virtual Machine.
Please consider at least upgrading to 3 or 4 gb of ram. I have seen nice improvements in virtual machine behavior when more memory is available.