Change the boot.ini to: (notice that the "default=xxx" matches the last line up to the first "=", so you can copy it rather than try to type it)
NOTE: backup the one you have before making changes. If you make a mistake it could prevent Windows from booting. See How to edit the Boot.ini for more info.
multi(0)disk(0)rdisk(0)partition(2)\WINDOWS="Micro soft Windows XP Home Edition" /fastdetect /NoExecute=OptIn
In order to create an Ubuntu CD, you need to download the ISO and then check the md5sum. If you don't check it, then you could waste a CD by burning a corrupted ISO. If you used a torrent to download it, it's probably okay, but a web browser download can be unreliable so you need to check.
You can also check your existing CDs by booting from them, pressing a key when you first see the keyboard and person icon (bottom centre), then select your language, and from the extended menu select "Check disk for errors". Because it's also possible that the CD is okay but maybe there are some hardware issues with an older PC.
Also, the 12.10 ISO is too big for a CD, you'd need a DVD. If you have the 10.04.2 ISO it looks like it should fit at 693MB. So likely you did download the 12.04.2 but check anyway.
Finally, your confusing about Wubi is understandable... it installs inside Windows (hence the control panel, add/remove programs entry), but it dual boots 'natively'. So it does appear to be a normal dual boot. Under the covers there is a virtual disk/partition, so it's not the same as a normal dual boot.
And at any time you can completely remove it by uninstalling from the Windows control panel (which it appears you have done).