Afaik it just installs linux into it's own folder and adds a option to boot into Ubuntu or windows, it's not actually running within windows, only installing.
It installs itself onto an image file on your Windows system. It then uses NTFS-3g and a special bootloader to read and mount this image as a complete working native system. Nothing is virtualized. If you don't want to use it any more you boot windows and remove it through add/remove programs. Nifty.
Correct. It installs a new operating system using your current one to skip some of the drudgery of mucking around in the BIOS, partitioning, etc. In order to switch between the two OSes you need to reboot.
If you want to run both simultaneously check out VirtualBox.
VMWare slow and buggy? That's not a good sign since it's the best VM product available. VirtualBox is a FOSS VM program intended, primarily, for desktop use. It's pretty good, but lacks some of the features of VMWare Workstation.
Correct. It installs a new operating system using your current one to skip some of the drudgery of mucking around in the BIOS, partitioning, etc. In order to switch between the two OSes you need to reboot.
Why? Having a proper multiple partition setup is always preferable. If your NTFS filesystem was somehow corrupted it would also nuke your Wubi/Ubuntu installation. Separating things insulates them from accidents.
Wubi is nice if you can't perform the old-fashioned types of installs for whatever reason.
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