Make W7 install as small as possible and increase Ubuntu size

This is because of the way WUBI works. WUBI is basically just a very big windows image file that can be removed just like any other program. It has no access to windows file system which is why you cant modify the partitions. (I bet you cant access any of your other windows 7 files?)

• Uninstall Wubi via the normal windows 7 uninstall process (making sure to back up any files you want to keep from your linux install)
• If you want to dual boot (run windows and ubuntu side by side) use the windows disk management tool to create a big enough partition for your linux install
• ensure you have install discs for windows 7, many manufacturers supply only repair discs meant to rescue a corrupted partition, these wont allow you to install windows 7 on your vm.
• burn a copy of ubuntu to a dvd
• Backup absolutely anything you might need in the future
• check everything has backed up correctly
• check your backup again (its quite important, you might have noticed)
• set your bios to boot from your cd drive, theres far too much variance bios setups to explain how to do this, but it will be an option worded something along the lines of boot order
• insert the ubuntu dvd
• Think carefully, the next process will format your hard drive, youll lose everything thats on it
• when the menu comes up select the install option you want: Use the entire hard drive will install linux on the selected drive, completely formatting it
• if you select specify partitions manually and choose the partition you created earlier you will be able to install both os's side by side.

there is an online guide that details the entire process here:

For installing 7 in a VM you most likely want to get rid of unwanted components, e.g. with RTSe7enLite (running on Windows only)

For Ubuntu as your primary OS, it is better to install Ubuntu outside Wubi. Next step would then be setting up your VM within Ubuntu.

Don't forget to backup before you start!

You want to change of running Windows 7 directly with Ubuntu running in a Wubi container to running Ubuntu directly with Windows 7 running in a VM. The more straighforward and safe way is a backup, format and reinstall, as in richzilla answer. The more convoluted way is to make space, install linux, create a new VM for Windows, and migrate all your data.

The problem is that windows can't reduce the partition size because some files (probably ntfs own metadata) are in the way. You can't move data when it is in use. Ubuntu can't modify the partition when booted from wubi as Ubuntu itfself is using the filesystem.

The best way is to use a liveCD with gparted to reduce the partition size. It will move the data, and create new partitions as needed. It's very important to have a recent and verified backup of all your data. Remember that your wubi container is also in that filesystem.

Then you could do a new install of Ubuntu, move all your data out of the wubi container and uninstall wubi, freeing that space . W7 would be accesible by dual boot. If that is an aceptable outcome you can stop there, and probably should.

There are tools to convert a Windows install into a VHD container but it is designed to run in MS Virtual PC, Virtualbox can run a machine using a VHD but the change in simulated hardware means that windows will most probably not work. The best bet is a new install and migrating the windows data.