Really cool experiment, although a bit difficult to extend as there are only 132 bytes remaining for loading anything else from the disk, which is not much (the boot sector is normally 512 bytes long on x86).
Correct me if I am wrong. Isn't it likely that you would create a quick bootloader in the 512 byte long boot-sector, and then load this Itsy-OS from storage (e.g. flash, ROM, etc). Ofcourse it would require the bootloader to be written...
Normally you would be right but I think since we're talking about kernel code golf here, it's only fair to consider the bootloader (if there's any) as part of the kernel.
I really like this. It's a good bootstrap environment for a kernel or scripting language of sorts. You could just about squeeze something to pull a block or two off disk with the BIOS on the end and kick off something more complicated.