No, App-V is not a compatibility solution. App-V does not provide any additional layers that applications can use when executing on different versions of Windows. Although 16-bit applications can be deployed on 32-bit Windows via App-V, it cannot be used to run 16-bit applications on 64-bit Windows.
If 64-bit Windows does not support 16-bit applications, then neither will App-V. The lack of 16-bit application support in x64 Windows is documented in this Microsoft Knowledgebase Article: 64-bit versions of Windows do not support 16-bit components, 16-bit processes, or 16-bit applications:
The x64-based versions of the Microsoft Windows Server 2003 operating systems and Microsoft Windows XP Professional x64 Edition do not support 16-bit programs, 16-bit processes, or 16-bit components. However, these 64-bit versions of Windows may recognize some 16-bit installers and automatically convert the 16-bit installer to a 32-bit installer.
- 64-bit versions of Windows do not support 16-bit components, 16-bit processes, or 16-bit applications
- You cannot install 16-bit applications on Windows XP for 64-bit platforms
- List of limitations in 64-Bit Windows
- A description of the differences between 32-bit versions of Windows Vista and 64-bit versions of Windows Vista
- Overview of the compatibility considerations for 32-bit programs on 64-bit versions of Windows Server 2003 and Windows XP
- Windows on Windows and WoW64 at Wikipedia