I completely agree with the idea that just keeping one computer running WinXP would totally solve this problem, and be far cheaper too than paying for all this custom development. However, the government organization has decided as a whole that EVERYONE must switch EVERYTHING to Windows 7, no exceptions. It's stupid, but there is nothing I can say or do that would convince them otherwise.
In fact, they ruled out using WinXP Mode under Windows 7 because Microsoft states on their website that they are officially dropping support for it in April, 2014. This seems silly when you consider DOSbox is an open source solution without any kind of official support. But I am very much boxed into a solution that will run on a Windows 7 machine using the COMIP software they already own and like.
In looking over the instructions for booting MS-DOS in DOSBox there are some problems there too. It needs a separate partition and, for that matter, a floppy drive in which to create the system from. None of their machines have floppy drives anymore and I have a dim chance of being able to talk their IT department into allowing me to create a new partition running a different OS on their computer.
I realize more than ever thanks to these posts that there are more options for virtualization than I realized. I'm currently in talks with the client over this, what I can and cannot consider, and I'm still hoping there is a fix for DOSbox which makes this whole issue moot.