I ran into an annoying problem with this a few months ago when I upgraded Fusion. Since I just upgraded Fusion again today to 3.1.1 and had to go through this again, I figured I would mention it so no one else has this problem. The VMware tools upgrades automatically now when you boot a VM after upgrading Fusion. However, the tools upgrade will fail if another VM is running while you are trying to upgrade the tools. With one VM already running, if you boot a second VM, the tools will attempt to upgrade, but you will receive an error message stating the tools upgrade failed (although it does not tell you why). Simply shutdown the first VM, then manually upgrade the tools by double-clicking the VMware tools icon in the system tray (it will have an exclamation point on it because the upgrade failed). In the properties window that opens, click the “update tools” button. The update will run successfully, the upgrade tools button will gray out, and the exclamation point will disappear from the VMware tools icon in the system tray.