For whats it worth, here is a updated patch that compiles on current svn. As i've been looking at it i've also come to recognize that the code is too bitrotten and buggy to be the best approach and from experimentation i've realized zip/7z support is the wrong approach. I'm now investigating a bsd/macos/linux only solution using FUSE+squashfs+union fs. It would work just like this, but the files squashfs handles are a magnitude faster to read and consequently they can handle much larger files and dirs - it's used on live cds to compress the whole cd.
I may do a (much simpler, delegating all of the real work to external dependencies) patch to use in my ppa which i will share if it ever materializes. The only-in-my-head plan for this is to have mount of a .sqshfs file execute a parallel linux mount of a unionfs(writedir+squashfs) through fuse - so it doesn't need superuser. I may copy the ":" idea to reference paths inside the zip, it would be critical to not have to cd into things all the time.
On shutdown of dosbox that would be unmounted.
For frontend support what i think would be best would be for the frontend to search for 'dosbox.conf' files in the .sqshfs file 'added' to it, and taking the name of the directory that contains them or the name of the .sqshfs file itself if it's top level for a config that just mounts the directory to run with that conf file (and by default, merging the main .dosbox confile too). That would be a p. nice way to 'automount' a game filesystem (it would work with normal ones too, idk if DBGL already has something like this maybe).
Now you may notice that all of the functions of such a patch can be implemented in the frontend itself. Indeed, the search patch for a frontend will probably have to mount the thing itself, so it all least needs to mount a squashfs. I'm ambivalent about everything being delegated to the frontend or just partially. Maybe it will be easier in the frontend since at least partial support is needed for usability. And in a frontend we wouldn't need to umount and remount everytime we quit a game and started a new one on the same filesystem. So yes, probably best there.
In the future, you could maybe even configure stuff to update the .sqshfs with a different FUSE combination.