Of the level of DosBox. Which will allow you to play at least 16bit W95+ games without issues.
I am not talking about Virtual PC solutions where you are forced to emulate hardware which was barely adequate when it (the real one) was released.
Is anybody even working on such project?

I dunno. I was able to play Warhammer 40k: Chaos Gate in the MS Virtual PC (or whatever it is called) last year or so. No problems, ran perfectly. Have you tried to run these? Since I am pretty sure Chaos Gate had higher requirements than whatever you are trying to run :p

The problem with Windows 95, is that it depends on quite a few copyrighted components: drivers, DirectX, etc. and to copy these without breaching copyright is a lot harder than just mimicking how DOS worked.

I don't think we will ever see a Windows emulator but there is a free XP clone in development: ReactOS
Still in alpha though...

REALLY?? I had no luck with that at all. Note to self, download the latest virtualPC!
What Microsoft need to do is team with nvidia and build a dedicated emulator for gaming. The potential market compared to the difficulty of making a lightweight virtual PC with a built in OS and properly emulated 3d hardware would be pretty large

Not really like Dosbox, but there is a project called ReactOS. They try to rebuild the WinXP-engine. In combination with a free virtual machine you can maybe someday build your own free "WinXP"Box. For Win95 I don't know nothing except the original Win95 in a virtual machine.

I don't have the game, but I have a suspicion that it isn't exactly demanding on hardware, what with all 2D and all. It looks like a higher resolution X-com. Hardly Wing Commander of its day. :p

Currently the best VM's for 16bit Windows games are Virtual PC 2007 and Vmware Workstation\Player.
Obviously VPC 2007 isn't ever going to be updated and it's doubtful that it will even work on the next version of Windows.
Eventually Vmware will no longer develop or provide support for 9x just like the latest VPC for Windows 7.
Don't even bother with QEMU or Bochs. Theire goals are different and 9x guest support in QEMU breaks fairly often.
The same goes for VirtualBox. There is no monetary reason why they would waste their time on proper 9x support for gaming especially since it's now owned by Oracle.
So your best bet would be to go vogons.zetafleet.com (Official DOSBox forum) and ask for proper 9x guest support.....because realistically DOSBox would be the best solution.
In the past DOSBox has been slightly more stable with Windows 9x (but not by much).... but as of DOSBox 0.74 only 95/95a is usable and it's nowhere near as stable as 9x under VPC\Vmware currently.
The reason why 9x isn't supported under DOSBox is that improving things for 9x support does nothing for DOS support which is what DOSBox is all about and time spent getting 9x to work is less time spent on getting DOS games to work which is more important, IMO.
What I can tell you is that as soon as 9x no longer works in any VM then I'm sure someone will jump at the chance at improving 9x support in official DOSBox or possibly taking the code and forking it....and there's nothing stopping someone from doing so today.

Virtual PC is good if the game is a 2D 90s game, at least most of the time. The trouble starts when 3D makes an appearance or there is any real graphics power required. In that case Virtual PC is as good at running them as my old Atari ST.
I will have to have a look at ReactOS.

I use VirtualPC to play a few games of Mechwarrior3, since it refuses to work on anything other than W98. It worked OK, but crashed every so often, an hour or so. I had similar problems with some other games, so VPC is off my "viable emulators" list.

Sure its being worked on, and has been worked on for almost 15 years now. it's called Wine. It's not really an emulator as much as a compatibility layer for Linux (and other *nix OSes), but it already very handily "emulates" Win 95.
So don't copy them, reverse engineer them. There is nothing illegal about reverse engineering, as long as it is done in a "clean" manner.

Well, the question is, how many 16-bit games are going to really be more strenuous than Chaos Gate and the like?
Anything beyond that, and you can (usually) get it working after a lot of pain.
The reason DOSBox was so needed is because you really can't get most of those working on a modern OS without DOSBox.

Don't bother. Just trust me. It's alpha. It doesn't work. The devs are slacking off.
Do not bother using ReactOS until version 1.

Use a VM with supplemental graphics drivers that allow hardware acceleration. VirtualBox had been doing that for a while with OpenGL in Linux. (Using the DirectX -> OpenGL work from the Wine project, IIRC).
Not sure how well this works on Windows hosts, but it's worth a shot.

So much effort. I thought I said goodbye to all this crap with the end of DOS and memory requirements there. Nah, thank you guys, I will just accept I won't be able to play some games again.