NGL one of my long term projects was/is something exactly like this but UEFI and secure boot. The idea being to use the VM extensions to create IBM-PC and DOS compatible environments. For anything using DPMI[1] I'd probably do the same trick as Win95 did and just replace it with my own implementation so it's not too overburdened with layers.
[1] https://en.wikipedia.org/wiki/DOS_Protected_Mode_Interface