How to install Ubuntu 12.04 within Windows 7 with a CD image of ubuntu (without use of an external CD/USB)?

The wubi installer that comes with Ubuntu 12.04 doesn't allow one to install ubuntu within windows. I downloaded the Wubi installer available here Ubuntu Windows Installer

There is absolutely no reason to mount the CD image. Wubi.exe - when run from a CD (or mounted CD image) - no longer supports the 'Install inside Windows' option. Unless you supply --force-wubi as a command line option. All you need to do is place wubi.exe in the same folder as the desktop CD ISO before running wubi. If it starts to download a new ISO then there is something wrong with your one - check the log file for details (in the %TEMP% folder, called wubi-12.04-revxxx.log