I saw an article describing something similar while working on the automatic generation of multimedia instructions (MMX, SSE and the like). While most works tend to focus on generating optimized binary (or source code using special constructs to direct the use of multimedia opcodes), one group was studying instead the possibility of applying the same kind of optimization directly on the binaries, thus using an approach similar to one you picture.

Unfortunately, i can't find the references of the article i read... I'll post it if i find it later... In any case, it should be referenced on citeseer (hxxp://www.citeseer.com), and referenced through keywords like 'SIMD', 'vectorization' or 'multimedia instruction set', so you may want to try to look there if you are interested.

Decompilation: On the Technical Infeasability
 

It is computationally infeasible to decompile arbitrary bytecode output back to C++, except in certain (isolated) special instances, such as targeting a subset of C++, and targeting a specific architecture and compiler. In the case of VMs, such as Java and Flash, it is possible due to the (relatively limited) nature of the output bytecode. In the case of C++, the myriad of possible compilation options, optimization, debugging code, etc. complicates matters enormously; what's more, there is significant data loss through discarded variable names in the interest of size, etc. Decompilation is thus an NP-complete problem that can only be partially solved through the use of O(n^2) algorithms; that this is verifiable has been demonstrated on several occasions in respected computational and information theory journals.

Though many have strived to produce such a result, the room for leeway is slight, and (generally) does not work on arbitrary, but rather specially-constructed programs in a very limited way. The entire methodology is flawed; the most effective way to obtain lost source code is to glean understanding from the underlying assembly code and then recreating it through existing programming knowledge.

Sincerely,
-archaios

Yes, I know decompilng is impossible...
But check this location:

hxxp://www.backerstreet.com/cg/work.htm

There are several decompiling projects an infos. Maybe some of them are useful.

gypsy

See uncc
 

you can see uncc,which can decompile to c language, and I am working on it to enhance it's ability.
you can find uncc on the net easily.

It maybe rewrite, but not decompiling.