IMHO you would be better fitting a larger HD to the laptop, cloning
the current contents after removing Ubuntu then installing Ubuntu
under WUBI again but giving it more space to play with on the larger
drive.

If you get a Seagate or Western Digital HD then they both have a free
version of Acronis True Image that can handle the cloning from the old
HD - just put the old HD in a USB caddy and plug in before firing up
Acronis, it will happily clone from a USB attached drive.

Also - why not go the whole hog and get the latest Ubuntu and install
that under WUBI if you must use it that way instead of dual booting ?