Upgrading my Wubi 11.04 to 11.10
You can upgrade a Wubi install - the same way as a normal upgrade, either from the Update Manager or via the Alternate CD (while running your Wubi Ubuntu). Note that the alternate CD has been discontinued since release 12.10 so you have to use the Update Manager.
I recommend that you check you have plenty of free space - at least 3GB - the upgrade underestimates the space it needs (bug report here).
Also, a quick and easy precaution is to backup the \ubuntu\disks\root.disk
from Windows before upgrading - that way, if it fails you can just copy over the root.disk from before the upgrade.
Note that upgrading to 14.04
will require a manual workaround in order to boot.
I don't think you can upgrade when you boot to the wubi install. You can try Alt+F2 then type update-manager -d
but I recommend reading https://wiki.ubuntu.com/WubiGe
I also suggest dual booting, however, if you plan on long-term use. Wubi is for evaluation and is known to run into issues down the road.