The aim of this installer is to provide an easier way for a Windows user to install Ubuntu without having to know how to burn a cd iso, set the bios to boot from cd, repartition the disks, set up a multiboot system, etc. It will not replace any of the current Ubuntu installation options, and will not require that windows is installed prior to the installation of Ubuntu.
The installer works by creating a disk image of a pre-installed ubuntu system on the hard disk (downloaded with a bittorrent downloader integrated into the installer, or a standard http download when we find mirrors), and then installing GRUB for windows, which can be chain loaded by the existing boot loader, and which then loads the linux kerner and initrd from the ntfs partition. The initrd is modified to support mounting the image file mentioned above as a root file system, and then continuing the boot process like a normal installation.
This does not use a virtual machine to run linux on, so the performance of the resulting system will be similar to the performance of any other linux installation. The system will use ext3 in the image file, so users will get all the benefits of a linux filesystem.
I used to use BeOS this way - mounting a virtual drive image under Windows and booting into it. It works well and you get good performance. For a while last year I was running Ubuntu under VMWare and you feel the virtualisation performance hit. I'm off to try this on a machine at home (that currently dual-boots). My MacBook is rapidly running out of disk space.....!