As the wubi installer gives you all options for all partitions on Hard Disk which is the right and good option to select? On C: where windows 7 installed or another D: ?
It doesn't make a difference. Wubi uses a virtual disk and that can be stored on any partition. If you have more space on one partition, then it might be more convenient to use. But there is no requirement or difference between one or the other. Note that the max space you can use for Wubi is 30GB.
Additional info: This may not apply to you, if all your partitions are NTFS, but the 11.10 Wubi doesn't support a standalone installation (using just wubi.exe) on a FAT32 partition at the moment (see this bug). If you have a FAT32 partition then you should either install using a downloaded Desktop CD ISO or use your NTFS partition as there is a size limit of 4GB on FAT32 file systems.