Hello John,
Cats are lovely animals, but the combination of jugs with water, cats and laptops.. is not the best 
There are a few things I see in your log:
> Log for VMware Fusion pid=19060 version=3.1.2If you are running OS X Lion then that should be at least version 3.1.3
You mentioned you removed the vmss file, so I take it that you tried a full reboot as well? (Aka making sure Windows did shut down and not suspend)
Dec 09 13:11:27.359: vmx| USB: Initializing 'Virtual CCID' backend
Dec 09 13:11:27.409: vmx| USB-CCID: dlopened /System/Library/Frameworks/PCSC.framework/PCSC.
Dec 09 13:11:27.409: vmx| USB-CCID: Could not establish resource manager context for card ops: SCARD_E_NO_SERVICE(0x8010001d).
Sound card issue mentioned elsewhere
Dec 09 13:11:27.409: vmx| USB: Unable to initialize 'Virtual CCID' backend
Dec 09 13:11:27.423: vmx| USBGM: Failed to retrieve drive type for volume:(/dev/disk0s2)
Dec 09 13:11:27.425: vmx| USBGM: Failed to retrieve drive type for volume:(/dev/disk0s2)
Dec 09 13:11:27.428: vmx| USBGM: Failed to retrieve drive type for volume:(/dev/disk0s2)
Dec 09 13:11:27.430: vmx| USBGM: Failed to retrieve drive type for volume:(/dev/disk0s2)
Looks like a USB disk is offered to your VM, but not recognized.
One thing you can try is... removing that external disk and if you don't have an external disk (aka it's an internal usb device) then try to remove the USB connectivity in your virtual hardware.
There are no complaints about the virtual disk itself, so my first thought would be that it should run fine.
I would start by upgrading to Fusion 3.1.3, make sure that the VM gets a fresh boot, and only then remove some features from the virtual hardware like sound/usb etc..
You do have a backup already right? 
hope this helps,
--
Wil