Found this information on the wiki:
How do I resize the virtual disks?
You can use LVPM, at http://lubi.sourceforge.net/lvpm.html
As an alternative, you can use the following script to move /home to a dedicated virtual disk.
Download wubi-add-virtual-disk, open a terminal and run:
sudo sh wubi-add-virtual-disk /home 15000
Where the first argument is the directory to move to a new dedicated disk, and the second argument is the size in MB.
You should now reboot. If you are happy with the result, you can now remove /home.backup. To undo the changes remove /home, copy rename /home.backup to /home and remove the /home line in /etc/fstab.
Note that contrary to previous information, this script is not suitable for moving /usr - experienced users may be able to do this manually, at own risk, following a process similar to that outlined in the file. (Do not rename /usr until the very last moment, as rsync is installed there.)
So, essentially you do need to create a new disk, move your data over to it (it seems like this script might do that for you, but I'm not completely sure) and then remove the backup image when you're satisfied.