Let's go in parts.
First, Virtual CD hardware solutions never got real traction because availability of software solutions for supported operating systems, and the scarce amount of titles which require cd-in-the-drive as verification method for DOS. DOS titles with music tracks in CD are also rare, and these generally will run in windows just fine.
The available solutions have a few things in common: All them are USB, and all them only support Data only ISO sessions. No real support for Audio/Copy Protection or other stuff, because these solutions were conceived mostly to boot systems and install base software from them (Think in older XP CDs, or Linux rescue disks).
Said all that, there are at least 2 open source project about this matter: DriveDroid and CDEmu
DriveDroid is an software host running in androd phones, which use available linux kernel facilities in these phones to emulate and present an USB driver or CD USB drive to host. USB drive is generally always available, but CD USB drive require certain functionality that isn't always available in all phones, and sometimes you need jailbreak your phone and hack your phone kernel to make it available (which you want, or don't want to do).
CDEMU is an self contained solution, made around the widely available Teensy++ board. Source code available for it, and also a more powerful solution with schematics and layout files for PCB making available OSS too.
Since probably you aren't searching for USB boot-only working solutions, probably none of these would be useful as them are right now. But hey! Nothing stops you to take code and schematics and build a solution suitable to your specific problem, as soon as you contribute back your changes to these projects. I guess is possible to take CDEMU firmware code and hack with it some existent interface, like SCSI2SD, to act as an Virtual CD instead an HDD for example.
This would work for data only CDs, and probably could be extended to handle Hybrid Data/Music CD's. Copy protection MDF/MDS handling would be more dificcult to do, and probably it would require an CPLD/FPGA to be done.
PD: SCSI2SD does basic CDROM support already. You still would need hack it to get audio/hybrid cd support. Copy protection would still require an more advanced CPLD/FPGA.