I had done this in a Desktop computer which is 32-bit, cd rom broken and usb won't boot. For this demo I did it again on my current computer.
With these steps you can boot the Ubuntu iso image using already running grub (your current grub2), after that install the new version from there.
Note: Until you format your drive everything is safe, but be careful to not loose power while installation (after you format your drive). You can try to boot ubuntu even with your current iso and see for yourself. Put ubuntu iso in a place other than your installation path. If you put the iso on /opt and try to install, it would be like cutting a tree from branch.
I will boot ubuntu 11.04 as an example.
Suppose I have the iso file in /media/Backup (doesn't matter) drive, and mounted as /dev/sda5. Its a ntfs drive.
$ ls
ubuntu-11.04-desktop-i386.iso
Next edit /boot/grub/grub.cfg and add like this (edit drive number to match yours)
menuentry "ubuntu-11.04-desktop.iso" {
set isofile="/ubuntu-11.04-desktop-i386.iso"
loopback loop (hd0,msdos5)$isofile
linux (loop)/casper/vmlinuz boot=casper iso-scan/filename=$isofile quiet noeject noprompt nomodeset splash --
initrd (loop)/casper/initrd.lz
}
When you reboot, you can select this and boot the installation media.