The Wubi installer does not at this time support Windows 8. Microsoft have changed the bootloader so it may take some time for the developers to change the Wubi installer. They will certainly wait until after Windows 8 is released before they do much with it.
By all means do a full install onto a USB drive, as long as you can set the BIOS to boot off it. Obviously, it's going to boot and run quite a bit slower than if it was on the SATA hard drive.
You could also set up a proper dual boot system, however the install will resize your Windows partition to make space for Ubuntu. I strongly recommend that before you do this you defrag the NTFS partition and run chkdisk on it, and make a backup of all your important data. Resizing a partition and moving the data is never something you want to take lightly.
As far as the size is concerned, it really depends on what you want to do. 16Gb is more than enough to just try Ubuntu and do a bit of web browsing. If you want to install lots of programmes and have a lot of data then 60+Gb would not be too unreasonable (but is getting a bit beyond what Wubi was intended for anyway). If you want to edit movies or rip your DVD collection, then you are going to need hundreds of Gigabytes.