You could conceivably do it. There's code available to explode the .upgrade files (search here for UpgradeSplitter). There are a number of things that needs to be upgraded in flash. Mark has demonstrated that this is doable inside the OS, though I don't think that there's any currently implemented code to replace an arbitrary address in the flash -- only the kernel point -- though it shouldn't be hard to make that enhancement.

In addition, the majority of the data in the .upgrade file is a filesystem image for the root partition. There ought to be a way to do this, even if I can't think of it right now. Perhaps that's some of what the flash upgrades do in the .upgrade file?

Regardless, there's no way to do this all currently. A significant amount of development would have to happen, but I don't think it's not overcomeable.

(BTW, I like the oblique FZ reference.)