Comment 4 for bug 461566

This is still a problem. When you install Wubi from a USB, it copies the entire USB partition onto the hard drive (can easily be 8GB or 16GB these days). Then Wubi fails the ISO if it's larger than 900000000 bytes (~852MB). When you create an Ubuntu USB it states to have at least 2GB free space: http://www.ubuntu.com/download/ubuntu/download "Insert a USB stick with at least 2GB of free space".

Since the precise desktop ISO is supposed to be 750MB I suspect more people will be using USBs.

There are two major problems:
1. The install fails. obviously.
2. You could potentially full up someone's hard drive since there's no space check to prevent a 16GB ISO being copied.