A lossless audio codec for internet distribution of music that compresses better would be still a good thing, IMO.

One might think so, but today's lossless music distribution doesn't use the existing high compression codecs either but FLAC or even Shorten.

Hmm... I guess the 'widespread' use of FLAC and shorten have more to do with popularity and the fact that FLAC and shorten are being open source.
Furthermore FLAC has better software and hardware support.
In contrary the known best audio compressors Optimfrog und LA are closed source and have limited software and no hardware support.

I wish lossless formats had more support on hardware. It's just so bad that those big executive didn't open their eyes yet to this market.

Implementing more codecs in the firmware means higher development costs, selling DAPs is a business after all. A solution would be to "open" the DAPs a little bit and offer SDKs so enthusiasts can write plugins for the players. But I think there may be legal pitfalls to that.

is it possible for people to create a "Lossless MP3" codec? just something that could benefit from the vast mp3 hardware support out there? Is that so difficult or patents are in the way?

Who on Earth is still encoding to SHN ? I can understand people being loth to convert existent files to FLAC etc. in order to preserve lineages but why would anyone choose an unnecessarily large, untaggable, essentially fossilized format ?

Not possibly, even theoretically. Even if you did make something like that somehow, nothing will be able to decode it.