Steps to make Wubi work again
When you reach the prompt, try those commands (one at each line)
In the second line i reference (hd0,msdos2) as being the partition where Windows is installed (and Wubi by extension). This means the partition is on the first disk (hd0) and on the second partition (msdos2). This is true in a normal Windows7 setup. If you are using Windows XP this will probably be (hd0, msdos1).
loopback loop0 /ubuntu/disks/root.disk
I think that path is the default, if it raises any error just boot on Windows and find the right path.
linux /vmlinuz root=/dev/sda2 loop=/ubuntu/disks/root.disk ro text
Again here i make the assumption that the path provided is correct and Wubi is installed on the second partition of the only disk (the usual). If this is not the case update the provided path and replace sda2 for the correct device.
This should boot you in "terminal mode" (no GUI). If it starts ok you can try issuing the following command, after login:
After that when you reboot the grub entries should be corrected.