I'm experiencing the same problem in here when creating a new VM (Win XP).
I just did some additional testing this morning and found out that the Virtual 
Machine Manager (GUI) only stall if you choose the OS type = Windows && 
Kernel/hardware acceleration check box is checked. Any idea / methods that will 
allow VM to be created as Windows type and enable Kernel / hardware 
acceleration ?

Cheers

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Assigning storage space fails if acceleration enabled
https://bugs.launchpad.net/bugs/221746
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