There might be different issues intermingled here. Thanks to your
comments I can confirm one bug:

If your windows boot device (say C:\) is different from the partition where you 
installed Wubi (say D:\ubuntu)
lupin>grub-mkimage will modify wubildr within the latter (D:\wubildr) instead 
of C:\wubildr. You can in such cases copy D:\wubildr to C:\ (replacing drive 
letters as appropriate). I am not sure though that is going to help much.

There also seems to be an issue with grub being unable to read a file
within a large loopfile, particularly when the contained files are
overwritten, so possibly an issue with the ntfs/loop modules within
grub. I cannot reproduce this, could it be linked to fragmentation /
file size of root.disk / file system size? Is there a size over which
this always happens? Does any file that is overwritten within root.disk
become unaccessible to grub?

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Wubi/Karmic boot: kernel panic - not synching: VFS
https://bugs.launchpad.net/bugs/477169
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