In 1985 you would need register level CGA/floppy/dma/irq/serial etc. You couldn't reuse anything from the C64, so it would essentially be a PC and a C64 in the same box (like https://en.wikipedia.org/wiki/Amstrad_Mega_PC).
The Amiga at least could display the video from a PC using it's graphics chip, so a combined hardware and software approach allowed it to work. But to make it compatible with games you had to use an actual ISA graphics card. So it was just an Amiga and PC in the same box, it didn't really save any money and you could get better PC's.
Sure you could stick an 8088 in the C128 and it would have access to 64k at a time. No software would know how to display anything on the screen or access more than 64k. The original PC came with 64k so you could run software that worked on that as long as it only used BIOS and DOS calls to access hardware (which a lot of software didn't).
The Z80 came quite late in the C128 design, so there was never a time when it would have made sense to design something radically different with an 8088 that allowed more than 64k at a time.
Of course everything is possible given enough time and money, but keeping to the C128 selling price and spending very little in chip design and it was impossible.
Ah! My apologies. You guys are frequently good for some education.
"The Z80 came quite late in the C128 design..."
That explains SO much.
I've always blamed Bill for the kludged together nature of the C128.
Its like they tacked a cheap CP/M board onto an existing design, which appears to be what happened.
I'd always thought that was what Bill intended at the outset.
Which should explain my bad attitude about him.
He and Dave must have felt a constant sense of butt hurt dealing with Commodore's management and their perpetual penny pinching.
They probably should have just left the Z-80 out (or the 6502).
If you compare the C128 to something like an MSX system, the C128's implementation of the Z-80 processor comes off looking really lame.