Service VMs, in IBM-speak, where the "OS" is a hypervisor called VM.

Reinvented a bit later as libOS (library operating systems) and unikernels.

Even Linux got in on that a bit:

https://lwn.net/Articles/637658/

It isn't a stupid idea, but the only way to update anything is to rebuild the world. Luckily it's a small world after all.