That's the difference between treating the zip file as a directory using on-the-fly compression/decompression vs. the zip-support you'll find in frontends for console emulators etc. What you are describing is the zip-support seen mainly in frontends.
These (usually) decompress the zip file to a temporary folder and access the decompressed files from there (like your Ultima8 example).
I'd rather look at it this way:
1. In my host OS I have all the files for Ultima8 zipped into "ultima8.zip" because all I'm really interested in at this level is the name of the game.
2. Within Dosbox I can enter this zipfile like a normal directory using the "CD" shell command.
3. Once inside I (and programs I execute within the zip file) can access each file of the archive individually. If you do a "DIR" the contents of the archive is listed.
4. When a file is to be opened only this specific file is uncompressed to memory from the archive - not the entire zip. To improve performance a cache can keep the uncompressed files in memory as long as no writing takes place.
I guess you can compare it to the way drivespace used to work in dos.
For iampiti:
Nothing rude in what you are asking/suggesting 😀
However, I still believe that grouping resource files together in single archives in the host os makes them easier to manage in the long run. There's a reason why ID Software groups all of their resource files into pak-files etc.