I've developing Rails on Windows since Rails 2.0. I had some issues up until 2.3, but it was still good enough for Windows.
Then came Rails 3 and RVM which is very hard to get working on Windows, and also, as everybody else are saying, plugins just aren't supported in Windows.
I tried running Ubuntu as a dual boot, but I didn't want to reboot my computer all the time when switching to a game or whatever.
So I tried running Ubuntu in a Virtual box. It was fine, but I'm just SO comfortable with Windows, that it just didn't feel right. Although, I was quite happy having a real Rails 3 environment. But as you're saying, it wasn't as fast as a native environment.
My current setup, which is just awesome (for me at least):
This allows me to have all files on Windows, and edit them in my favorite Windows editor!
Ubuntu is running the rails server with the mounted shared folder, so it treats it as any normal folder basically.
With the comfortable Windows environment, and the power of Rails on Ubuntu, this feels like heaven, compared to my previous environment.
And since Ubuntu is only responsible for running the Rails server, it's as fast as in Windows (or maybe faster).
Also, since it's a shared network, I can easily just use an alias for it's ip. I use virualhost instead of localhost in my browser. (Added in the hosts file)
I haven't tried Wubi, but this is definitely a very viable setup for Windows developers.