Ok I have completed putting this together so we can use it.
Right now it is kind of tied to Squeezeslave and then to a SqueezeBox player. Theoretically it could be setup to work as the primary output on an MD but it is a long way from there. What it does do is create a sound device out of unused sound ports or sound cards. Right now it is limited to 1-2 channels. I am wondering if there is any desire to use this as multichannel (more than 2) or surround sound. This is possible but I do not see, for my purposes, a use for this so I left it out. It can be used on any MD. Meaning any available audio output hardware, usb or any jack, attached to any md can be mapped to a Squeeseslave then to a SqueezeBox player. The great thing about this is that it is persistant. Meaning the Virtual device is mapped to a PCI location so if you add or remove sound hardware the virtual device resolves fine at squeezeslave restart.
With this setup the Squeezeslave template has changed a bit. The launcher is different and there are two additional methods of choosing the audio output device. The old method of entering a squeezeslave -L device number (kept to maintain backward compatibility), selecting via pull down list a sound card listed by hardware, or by entering the device number of a Virtual Audio Device. This last option is tied to a newer version of Squeezeslave (1.2-xx).
I have not added anything for the new squeezeslave code in my ticket. It is a little large to upload. If someone could, let me know if the new verison can or will be added to the repository. If needed I can add some code to use the version currently in lmce.
I've tested it. But more would be nice.