It seems to me that the main issue here is painful disconnects between the VM and the host system. The kernel in the VM wants to manage memory and disk usage and that management ultimately means the host needs to grant the guest OS large blocks of disk and memory.

Is anyone thinking about or working on narrowing that requirement? Like, I may want the 99% of what a VM does, but I really want my host system to ultimately manage both memory and disk. I'd love it if in the linux VM I had a bridge for file IO which interacted directly with the host file system and a bridge in the memory management system which ultimately called the host system's memory allocation API directly and disabled the kernels memory management system.

containers and cgroups are basically how linux does this. But that's a pretty big surface area that I doubt any non-linux system could adopt.