i have the same problem. the thing is that i got the wubi 7.04 installer, installed ubuntu 7.04, then upgraded to 7.10. after the upgrade reboot, the xserver is gone (i get a blue screen). if i try to "dpkg-reconfigure xserver-xorg", i get : "/usr/sbin/dpkg-reconfigure: xserver-xorg is broken or not fully installed"
What I used was "Wubi-7. 10-alpha- rev381. exe"
To install "ubuntu- 7.10-desktop- i386.iso"