I don't mean to overconstrain the definition of loopback. If you have a good mechanism for specifying a specific IP range as loopback, and that mechanism can be understood by client software and resolution APIs, then I don't see any reason not to allow it.
The salient distinction from my perspective is traffic within a specific host, and traffic that traverses the network. If you have suggestions for language that make that distinction more clearly than the document currently does, I'm happy to incorporate it. :)
I also find it curious that this draft allows only address queries (presumably A and AAAA) under .localhost. I'd like to know the rationale for that restriction. For example, there may well be applications that only use SRV records.
https://twitter.com/dbrower/status/781001487157719040 raises similar concerns. The rationale is simple: I wanted to make the smallest change possible to RFC6761, and item 3 of https://tools.ietf.org/html/rfc6761#section-6.3 already contains the address query restriction.
It's probably reasonable to reconsider it, that's just a larger change than the one I was specifically trying to make. :)