Virtual 8086 mode, on the other hand, does behave exactly like a real 8086, which otherwise would have been very slow to implement on a real 386, and was either very slow on a 286 or impossible due to the 286 having some errata that prevented normal virtualisation techniques (the 286 had some non-restartable exceptions).
Virtual 8086 mode, as its name somewhat suggests, only runs real mode code.
Note that in a machine with EMM386, the machine is normally running DOS inside an 8086 VM... and the only reason it would switch out of that VM is when you fire up a DPMI client.
For things like Windows 3.x, 9x, OS/2, CWSDPMI, DOS/4G (DPMI & VCPI), Paging & Virtual Memory was an optional feature. In fact, CWSDPMI/djgpp programs had flags (using `CWSDPR0` or `CWSDPMI -s-` or programmatic calls) to disable Paging & Virtual Memory. Also, djgpp’s first DPMI server (a DOS extender called `go32`) didn’t support Virtual Memory either but could sub-execute Real Mode DOS programs in VM86 mode.
I do dispute your assertion that virtual memory was "disabled". It isn't possible to use V86 mode (what the Intel Docs called it) without having a TSS, GDT, LDT and IDT set up. Being in protected mode is required. Mappings of virtual to real memory have to be present. Switching in and out of V86 mode happens from protected mode. Something has to manage the mappings or have set it up.
Intel's use of "virtual" for V86 mode was cursory - it could fail to work for actual 8086 code. This impacted Digital Research. And I admit my experiences are mostly from that side of the OS isle.
I did go back and re-read some of [0] to refresh some of my memory bitrot.
[0] https://www.ardent-tool.com/CPU/docs/Intel/386/manuals/23098...
On Windows 3.x, paging and swapping was optional - if you started it in 286 ("standard") mode. On Windows 95, paging is not optional, and it's not optional in Windows 3.11 for Workgroups either.
