The issue seems related to the sysctl settings modified by /etc/init.d
/lupin-sysctl. Uninstalling lupin-support should make the system work
again without hick ups. The sysctl settings were suggested by Szaka in
order to minimize the effects of hard reboots with nested filesystems
(where the nested fs journal is at risk of becoming corrupted because of
data loss in the host fs) and used to work fine with older kernels. We
should reassess whether it is appropriate to keep such settings and
investigate whether some of them are incompatible with the current
kernel (as it seems).

** Changed in: wubi
       Status: Confirmed => In Progress

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wubi install unusable - Buffer I/O error on device loop0
https://bugs.launchpad.net/bugs/204133
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