I had the same problem: Xubuntu 32bit installed via WUBI on a FAT32 partition.
I have removed the obstacle uninstalling the older linux-image-2.6.27-7-generic package (via synaptic, I am currently on 2.6.27-11-generic). However, as a precaution I have also installed linux-image-2.6.27-9-generic as a backup.
I had the same problem: Xubuntu 32bit installed via WUBI on a FAT32 partition.
I have removed the obstacle uninstalling the older linux-image- 2.6.27- 7-generic package (via synaptic, I am currently on 2.6.27-11-generic). However, as a precaution I have also installed linux-image- 2.6.27- 9-generic as a backup.