Sorry, Triffid, but as I said the ATmega is capable of self-programming, so yes it is technically possible for it to pull code from the SD card, write it to flash, and execute it. This really isn't any different conceptually from pulling the data from a serial port and writing it to flash, which is exactly what the Arduino bootloader does for us, allowing us to program the ATmega without a hardware programmer.
As I said earlier I don't think it's terribly practical, but it absolutely is possible.
-j