Unetbootin can make your external drive bootable with certain ISOs without formatting the drive - it keeps all the data and adds the MBR to it, along with some unpacked folders and files from the ISO. But be careful, it has an option to format the drive, tick that checkbox before pressing next.
If you want to install Ubuntu in a normal way, to separate the partition, then you'll need to write your ISO to CD/DVD/USB and then boot from it (you'll have to tell the BIOS about it). If you have had any linux distribution previously installed, you could add a boot menu entry to the GRUB and tell it to run certain ISO image from a specific drive.
Do you want to install Ubuntu to the same Windows partition? Because with WUBI you can install Ubuntu to a Windows partition alongside with your current Windows, just by running all stuff from Windows. See the link I put on WUBI.