WINE is not emulating/translating instructions to a diffrent ISA. It rather has a win32 loader and inserts some shims to map some calls to windows library functions and others to native(as in host ex. Linux). That's how I understand it. You can however theoretically run x86 WINE to run a x86 windows binary on ARM with Qemu user emulation.
That's a Windows limitation. X64 chips are plenty capable of running 16-bit protected mode code while the OS runs in long mode. It's that Windows didn't want to deal with translating HANDLEs back and forth between the two modes.
Wine has never ran 16-bit Windows programs in 16-bit mode. They are instead translated to 32-bit at runtime using some magic, especially using 32-bit addresses to emulate 16-bit real mode.
