I don't think it's possible to boot the Windows DVD .iso image in its .iso file form.
You would need an existing partition with a formatted filesystem (either NTFS, ext3, or whatever else Grub supports). Then you'd have the problem of mounting the .iso as a virtual drive in some manner, and then booting from that virtual drive. And then Windows Setup might have problems running from that virtual drive instead of a real one once it does start up.
You're far better off preparing and formatting a small 4GB NTFS partition, making it bootable and copying the complete file/folder structure from the .iso to that partition. Then you'll have something you can boot just like an installed operating system - all it takes from here is adding a boot entry for the partition to Grub.