Until such a software is made, I see no benefit to having a sparse FAT32 file over the current dual partition approach.
So why don't you create the larger ext3 partition into the loop file instead?
This has nothing to do with the partition layout. $HOME has never been visible to the standard applications, even when MyDocs was in the same partition as $HOME.
If you're really interested in this, you can "move" where applications expect MyDocs. At least, you could in Diablo with the $MYDOCSDIR environment variable.