Running SLES12 with XEN virtualization.

I am trying to upgrade one VM that is running Windoze 2008 to Windoze 2012. I have attached a CD drive to the VM and can see the CD disk. The CD is the Windoze 2012 server disk. When I run setup.exe the Windoze VM complains with the following error:

Windows 8.1 installation can only be started from Windows 7...... and a bunch of other stuff.

Any ideas on how to perform the upgrade.