I know that there is possibility to mount an *.iso file or mount a folder but with guest additions installed on hosted machine. But the simplest way should be to do it as a pen drive or as a 'virtual' iso file, that is without previously converting it to iso file because that is simply waste of space.
In example now i have 8GB folder that I must convert to iso file to mount it on virtual machine and I can't install additions because i'm running virtual xp as live-cd so I can not install anything on it anyway.
You could access the folder as a normal network share (I don't mean a GA shared folder). The shared folder could even be on a USB pen drive.
Your suggestion of a virtual ISO image does not sound practical, memory problems aside it's hard to see how it could cope with dynamic changes to the target folder(s). The USB idea is better, but that would require a complex virtual USB infrastructure that doesn't currently exist (AFAIK the only thing that exists now is a USB filter driver and a passthrough from guest to host). Meanwhile shared folders work well enough for most.