They invested huge amount of resources to make sure it is backward compatible in NT, to the disagreement of David Cutler. There is a NTVDM extended with WoW for Windows 16-bit, AFAIK. I have a copy of leaked source code of NT 3.5 but I'm not good enough to understand the code. Also probably modern VMs such as DOSBOX do a better job emulating 16-bit stuffs.