This is kind of a YMMV approach to running applications. Some things may require additional features which I removed. For example, I found that Civilization for Windows required that I add back "COMMDLG.DLL".
But I think the initial list is pretty minimal. I would be interested to know if there are any applications that successfully run with an even smaller subset for comparison.
Don't forget to apply this for an even smaller installation:
Just remove all the programs. replace the shell=progman.exe with the game executable, then that will keep the user from doing anything with the windows install. comdlg* files are "common dialog" bubbles, like the file picker for saving and loading games.
As far as legality goes, there's not really that much incentive to get Win16 software working on actual VM's so DOSBOX and gaming-oriented PC emulators are what's used, which means that at some point, there must be a game or application that Microsoft itself wants to re-release and not have to write a WoWoW layer (Win16 on Win32 on Win64), Win16 and DOS software can still work on the NTVDM in 32-bit NT4/2K/XP. It's not available on 64-bit OS's. If Microsoft really cared about licencing Windows 3.x they would still be selling it. The best that can be had is that games that for games that do not have a DOS mode, (eg Sierra's Outpost) that don't work properly or at all on Win95+ is for the companies who own the rights to the game to sell a "installed" disk image that doesn't require Windows be shipped with it to work in DOSBOX. The dosbox configuration would then be setup so that either a full version of Win 3.1x or some kind of free replacement can be dropped in.
I'm not sure if there's anyone out there trying to "make" a Windows 3.1x compatibility layer. But if Microsoft were so inclined they could "sell" their own stripped down Win3.1 and Win95 "drive" images on GOG.com . Just remove everything from the OS but the drivers that work with dosbox.