Doesn't work on an iPod touch. The firmware for the iPod touch is a whole different beast so, if anything, Rockbox would have to go the approach of making an app for either a legit or jailbroken iPod touch or iPhone.
I talked about this some time ago on IRC, considering since there is already a prime example of a chiptunes app that works great, and even has bundled features to get the tunes on there.
http://itunes.apple.com/us/app/sid-player/id300205592?mt=8
That's a C64 player that has a direct linkup to the High-Voltage archive, and you can download the whole thing as once or just each tune as you play it (iPod touch needs WiFi connection to download, obviously). However, as a concept, this definitely shows that playing those kinds of game music files can and would work. Especially with the increased processing power of the touch over the previous iPod generations, and the fact that jailbroken iPhones already have working emulators for a number of systems, I'm surprised it hasn't happened yet.
Here's to hoping someone picks up the challenge cause I'd love it just as much as you would, Biznut.
The advantages of having the files on there as opposed to the mp3's are worth it, IMO. The filesize is DEFINITELY an advantage, as well as for organizational sake (nsf and other filetypes that store multiple songs in one file). Plus you wouldn't have to worry about degradation of quality from the transfer to mp3.