ok time for a slight history lesson.....
Sf2 and I mean the first sf2 did, indeed, have a cocktail mode. I know because I saw it at a pizza joint back in the day when the game was new. I did some research... it's unclear if it was an "official" release or not but how they did it was basically the same as how you mentioned but with hardware instead. Basically I'm guessing they took the orignal signal, took out ever other line, doubled the signal and flipped one half, thus making the display. Needless to say it doesn't look that good. I'm guessing that's why it didn't catch on.
edit: interesting... apparently they have taken teh mode out of mame at this point. I guess that means they believe it's a hack.
Anyway thought it was worth mentioning.
Also if you look at sf2 in mame, the warning will read "cocktail flipping is not supported." So somebody could add this to mame. It's been several years unresolved, so the dev team might be receptive to a slight hack if anyone wanted to give it a go.
Any takers?