Mount an ISO virtually using /dev/sr0 device

The thing here is that /dev/sr0 is linked to a kernel device driver. That device driver will allow access to a physical CDROM if available through that node; VMWare and VirtualBox emulate hardware as you mention and hence the kernel and device driver think they're communicating with hardware.

The /dev/sr0 doesn't point to a certain buffer directly, it provides an interface to the block device interface that allows userspace processes to acces the contents of the hardware device.

If you want to make an image available as a block device, then your only choice (besides virtualization and emulating hardware) is to use loop devices with losetup... or to write your own replacement device driver, but I expect that's not a viable option for now.

If you want to make that image available as /dev/sr0 (are we talking about faking out some software that demands access to a CDROM at that location?) then you could move that file to e.g. /dev/sr0.moved and then symlink the appropriate /dev/loopX to /dev/sr0. Of course, if the software in question tries special commands that only apply to CDROM devices, then this won't work. Otherwise it shouldn't be a problem.

If you use cdemu instead of the loop mount it will give the desired effect. It emulates a cd-rom device. Where as mounting just gives access to the files. It can also be used for mounting cue/bin files and other image types. This gives the ability to mount images that have more than one track or data/music track combinations.