This appears to be a bug in the Ubuntu installer which gets confused if you have more than one drive available when you start the installation. Because you are running Ubuntu from a virtual drive, it doesn't quite have a handle on setting a proper drive letter and can not get past the initial stage of setting up a valid drive letter for your installation.
I've discovered that many Ubuntu users who install under Windows prefer using wubi
to install Ubuntu under Windows. Give that a try and see if you have better results. You can download the official version of wubi here:http://wubi-installer.org/
Let me know how this works...