By the looks of it, you installed the Ubuntu 8.04 version of WUBI instead of utilizing the 1.7 ISO file. I'm not 100% sure about that - but that is what it looks like to me.
You must have missed something in the instructions or maybe your not done with your adventure yet
Heres a quote from the WUBI page I linked you too:
What version of Ubuntu do I get with that?
Ubuntu 8.04 (which at this point is also a beta version).
Can I use an existing ISO/CD instead of letting Wubi download a new one?
Yes, physical CDs will be detected automatically, pre-downloaded ISOs should be placed in the same folder as wubi.exe. You can find the latest ISOs here