This site really works best one question at a time. But in this case, they're really very related so I guess it's ok.
While installing Windows, you don't have to make any room for Ubuntu at all – regardless of whether you're installing normally or using Wubi. Later, when you install Ubuntu, you'll have the option to decide how much goes to Ubuntu. In the case of a normal install, it'll automatically resize the Windows partition for you. You just use a slider to decide how much goes to Windows and how much goes to Ubuntu. In the case of Wubi, you select the size of the disk image.
At least by default, the Ubuntu installer uses a single file system for your Ubuntu system, including your home, so you don't have to choose that.
I wouldn't personally recommend using Wubi. The simple truth is that it's used by so few people, testing is quite poor and consequently, there are numerous issues with it. If, for some reason, you can't use the normal installer, it's fine, but if you can use the normal installer and install from a USB stick or CD/DVD, that's always preferable. The installation process is just as simple.
The big difference between a wubi install and a normal install, is that the wubi install doesn't use a partition on your harddisk, but instead stores everything in a disk image located on your Windows filesystem. This often causes some issues. For instance, in the case of a power outage, your disk image might get "lost", causing you to be unable to boot Ubuntu and you'll have to manually recover the file – this isn't straight forward.
So all in all, I'd recommend that you install Ubuntu using the normal installer and not Wubi. And if it's ok to wipe the entire disk while installing Windows, just tell the installer to use all available space. Later, when you install Ubuntu, you tell it how much space you want. Or you can just leave empty – unpartitioned – space while installing Windows and tell the Ubuntu installer to use free space. Either approach is fine, though the former is slightly faster.