A kernel upgrade can cause problems in a number of ways. It can happen in
WUBI or in a full installation. Drivers, especially graphics drivers, are
often linked to the kernel and sometimes a new kernel can cause things to go
awry. However, if you boot into an older kernel from grub things often work
as before. The kernel problem usually rights itself over time as associated
packages get caught up, or so I have found. So, I would not fault WUBI
itself. It is just a Linux thing because the kernel is so frequently
upgraded.

The only thing that surprises me was that it was 10.04. The kernel is not
usually upgraded much in LTS releases as these are meant to be more stable.
I don't have much experience personally though because I follow the six
month upgrade path and am running 10.10. These things are common enough
occurrences that I do not worry. I just boot into an older kernel and do
updates for a few days then retry the newer kernel and things just seem to
work for me.

The good news is that you resolved it and now have a full installation of
Ubuntu. Sometimes Vista can rewrite the bootloader so keep your Ubuntu disk
handy to fix it. WUBI is not meant to be a replacement for a full Linux
installation and it is not exempt from the peculiarities of Linux such as
you experienced where upgrades can be uneven and produce unexpected results.

I guess I didn't express myself very clearly. This was NOT a Kernel problem. The
update simple erased the contents of the boot directory in both cases. On the
laptop, copying the boot directory from the desktop fixed the problem. On the
desktop, it did not. Booting an older kernel was never an option, because there
was no Grub and neither Windows nor Linux would boot.

Okay. I get it. You managed to resolve it and that is what counts. I am
unsure why the boot directory would be wiped. It is a mystery that should be
looked into.

I would guess wubi plays tricks that the standard update fails to
consider. Depending on what computer I am working on at home, the boxes
have 3 to 5 distros on them. In updating grub2 I must boot in the last
installed distro to make any changes, that is if I want my changes to
work with the grub on next boot up. I tried updating the grub while
running in other partitions with no success, even though the conf file
was changed in that partition.

I have noticed that when I have installed with wubi, a different screen
pops up than with the standard grub screen. I had assumed that a windows
boot loader or some other loader was used rather than the standard grub2
boot loader installed when I took the time to change the partition
tables for a proper install.

It is easy enough to change the grub file to:
1.) start up using any default OS you define.
2.) limit the time that the grub splash is displayed. Where no one has
to know that another OS is installed on a machine.

Linux can take so little space, that a change on the hard drive to
accommodate a Linux distro will likely not be noticed by anyone that
allows you to install using wubi. In all likelihood, a typical windows
user has close to a heart attack just letting someone use their machine
so when they trust you enough to let you use their machine and install a
program. They would likely let you install Ubuntu the right way and
your path would be paved with much less frustration.

It is also likely that while you were not looking, there would be
another convert to the Linux brotherhood.

You are right; WUBI uses the Windows bootloader which is the two line one
that first pops up. Grub will then appear afterwards. WUBI's grub is NOT
written to the bootloader of the MBR because that is where Windows'
bootloader is and only one can occupy that space. When a regular
installation is on the same computer, it will overwrite the MBR of the first
drive by default. It does not have to be there, but that is the default.
That means that you will lose the Windows bootloader if you use the Ubuntu
default and will have to work to restore WUBI as a choice. You can have more
than one grub if you have more than one drive and control which drive boots
with a boot manager. On my computer (HP) I press ESC to get a boot menu.

The purpose of WUBI's grub is to give you choice between different kernels
and boot choices in WUBI. I am not sure where that grub physically located,
but it is probably in the Ubuntu folder on the C: drive. It has been awhile
since I played around with WUBI. The purpose of the Windows bootloader is to
point you towards the two OSes installed on the C: drive, Windows and Ubuntu
which resides on the C: drive but is treated like a partition via a
loopback.

Things get very convoluted with more than one grub, but it is possible if
you know what you are doing or can at least fix mistakes manually. On my old
computer I often had three or more instances of grub. This one has only one
drive so it is fairly straightforward. Less for my brain to keep track of
which is good.