Certainly if it had been enforced by the console firmware, then it would be a no-brainer that emulators should do it.
Funny story about this actually is that a while ago I was retrofitting an old dance mat to be an XInput device via a Teensy, and I ran into a constraint where XInput's d-pad support only allowed one direction to be set at once, which obviously doesn't work for that use case. I ended up giving up and having the Teensy emulate a USB keyboard instead. (This was for use with Stepmania and Necrodancer on PC.)
Meanwhile the PS3 and Xbox 360 had hypervisors.
I imagine this kind of thing is also why the backcompat story for playing Wii games on a Wii U is so janky— you have to access them through the "vWii" environment, which I guess is basically just a kind of VM, so that it can provide a virtualized instance of the hardware that the game ROMs/discs are expecting to talk to.
Agreed, however, that all PPC code running during a game came from code on the disc, even "OS" things like the Home menu. The IOS code largely gatekept the advanced Wii features as compared to the GC