So I have traded XRP to BTC and now I have 1 BTC on my Ripple wallet. It is a BTC.IOU or a real BTC? Is there any third party risk with keeping that BTC in my Ripple wallet?
Yes, there is absolutely counter-party risk. You are trusting your gateway (issuer) to hold your BTC. They issue you an IOU of that asset to utilize within the Ripple Network. To remove counter-party risk, withdrawal your BTC back to your own BTC wallet.
This is why I believe Ripple has the potential to hugely backfire. Imagine if multiple trusted gateways go byzantine and behave badly, possibly in a network partition situation. Fast transactions means the potential for large divergence if things do screw up.
It's no different than with Bitcoin or any alt, and their respective exchanges. Same risks. Bitstamp, which is obviously a BTC exchange, is also the largest Ripple gateway. Anytime you deal with an exchange, gateway or even a bank, you take risks. The only way to be certain, is to never remove your assets from your personal wallets.