Actually, that would reduce to binary emulation because you would need the program to monitor hardware access down to the level of accessing memory. (Example: are we MOVEing data into the framebuffer.) You would also have to concern yourself with things like the contents of registers, because you have two OSes trying to control the CPU. The other reason is that I'm not sure if the 68000 is designed for virtualization. I've seen the difference between virtualization on older x86 machines and the PowerPC, and the difference made the x86's virtualization feel like emulation because critical parts of the processor had to be emulated.
In a lot of cases, you wouldn't have to worry about translating instructions but there would be a lot of exceptions to the rule. Which is why I would still consider it emulation. Now I'm not saying that the whole thing is impossible, but I am saying to expect enough of a speed drop to make the emulated machine feel slower than the original machine.
Oh, and I wouldn't say that anything is possible in theory. After all, some things aren't computable.