The details are rather confusing to me. 13.04 is compatible with Wubi, you said yourself it is working. Therefore that's not the problem. You have an...
When you get no root filesystem defined with a Wubi install, then you will also get it for a normal install. It's due to some partition table issues....
It doesn't matter how much free space is on the partition. Wubi uses a virtual disk and this is what it's referring to when it says "/". The upgrade...