Working with the Windows Backup & Restore as well as Acronis the system images created by both are not in ISO form. That's not how the backup feature works with either.
With Acronis however you can mount the disk image created as a second C drive listed in Computer or any explorer window and even opt to add more files to it. That allows incremental backup for individual items rather then replacing one image with a newer one.
Your description however seems to point to a drive detection problem as if the boot sector or necessary system files were missing from the drive following the first install. Generally any full system images even for smaller drives are spread over multiple dvds not compressed small enough for just one live disk.
Ubuntu on the other hand starts as a live version of that distro being much smaller in size to start with. The only portable method found for any version of Windows was during the beta to RC time frame for use of the Portable Virtual Box to see 7 on a usb flash drive. How To Install Windows 7 On USB Flash Drive
Note that allows for a temp install seeing the flash drive made bootable. Ubuntu x86 on the other hand only takes upto about 2 1/3gb of space when custom installed directly onto a flash drive making that the better option for portable there. For you the best first idea would be trying the startup repair tool when booting from the 7 dvd or may require an upgrade to repair or simply second clean install if the first was bad from the start.