Some folks described it as genius. I guess it's my turn to play the role of an annoying HN skeptic: I find it somewhat silly. Data compression formats are secondary to what you're planning to do with the data once decoded. An audio file is completely different than an SVG image. An embedded VM that decompresses video to raw pixels doesn't magically let you play that video in a text editor, so there's no radically new kind of interoperability. Each new format still needs to be handled in a format-specific way.

I guess one use case is that I come up with a video compression scheme that's better than H.265, but not all platforms support it, so I embed a decoder that would allow me to play it back on legacy hardware. But that also shows the weakness of the idea: it's unlikely that legacy hardware will perform well doing software-only decode for video formats from the future. If we rolled this idea out in the 1990s, it would not have allowed watching Netflix on an i386.

In the same vein, I doubt this would have allowed me to open Word 2021 files in Word 97. There's no 1-to-1 mapping between the data structures. So if this kind of compat isn't slam-dunk, what's the goal?

The downsides are clear. First, it's probably a maintenance nightmare: if your decoder has a bug that needs fixing, how do you patch all the files that already embed it? And then, there's size overhead and security risks. We're adding a considerable attack surface to every format parser. It's more opportunities for remote code execution, resource exhaustion attacks, and so on. Again, this is not always wrong, but what's the benefit?

I don't think you have encountered the problems that this class of formats solves. Try looking up columnar storage formats, the pros and cons are pretty well defined these days. It is not meant for video decoding, indeed.