Someone already created that[1] using custom kernel driver and there own CDN, but they seem to of abandoned it[2], maybe because they would of attracted Valve's wrath trying to monetized it.
That's actually quite interesting. Not entirely what I had in mind but close! My version would have only the first boot be a bit slow, but the aspect of dynamically replacing local content there is cool.
This would be extra cool for LAN parties with good network hardware
[1] https://web.archive.org/web/20250517130138/https://venusoft....
[2] https://venusoft.net/#home