No issues with the license modification (GPL to LGPL)?

When I die, it needs to say on my head-stone: He played a lawyer on the 'net. Oh well...

I think there is an issue here. No one but the original license holders can change the license terms. So all the stuff that PocketDOS has added to the DOSBox sources needs to stay under GPL.

And worse (for PocketDOS), by using a (complex) plug-in like this, they are required to make their own software GPL'ed (or maybe not, because the plug-in is an optional module??):

Can I release a non-free program that is designed to load a GPL-covered plug-in?

It depends on how the program invokes its plug-ins. For instance, if the program uses only simple fork and exec to invoke and co […]
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It depends on how the program invokes its plug-ins. For instance, if the program uses only simple fork and exec to invoke and communicate with plug-ins, then the plug-ins are separate programs, so the license of the plug-in makes no requirements about the main program.

If the program dynamically links plug-ins, and they make function calls to each other and share data structures, we believe they form a single program, which must be treated as an extension of both the main program and the plug-ins. In order to use the GPL-covered plug-ins, the main program must be released under the GPL or a GPL-compatible free software license, and that the terms of the GPL must be followed when the main program is distributed for use with these plug-ins.

If the program dynamically links plug-ins, but the communication between them is limited to invoking the `main' function of the plug-in with some options and waiting for it to return, that is a borderline case.

Using shared memory to communicate with complex data structures is pretty much equivalent to dynamic linking.

See also the question I am writing free software that uses a non-free library.

The FSF has an answer for this - and it requires the license holder to grant them explicitely rights to call the plug-in through a pre-defined interface (in case an interface designed by PocketDOS for their CPU-plugins):

How can I allow linking of proprietary modules with my GPL-covered library under a controlled interface only?

Add this text to the license notice of each file in the package, at the end of the text that says the file is distributed under […]
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Add this text to the license notice of each file in the package, at the end of the text that says the file is distributed under the GNU GPL:

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1Linking ABC statically or dynamically with other modules is making a combined work based on ABC.  Thus, the terms and conditions of the GNU General Public License cover the whole combination.
2
3In addition, as a special exception, the copyright holders of ABC give you permission to combine ABC program with free software programs or libraries that are released under the GNU LGPL and with independent modules that communicate with ABC solely through the ABCDEF interface. You may copy and distribute such a system following the terms of the
4GNU GPL for ABC and the licenses of the other code concerned, provided that you include the source code of that other code when and as the GNU GPL requires distribution of source code.
5
6Note that people who make modified versions of ABC are not obligated to grant this special exception for their modified versions; it is their choice whether to do so.  The GNU General Public License gives permission to release a modified version without this exception; this exception also makes it possible to release a modified version which carries forward this exception.