I belive it is working in kernel mode, but so far i dont think that we yet have the ability to send sys-calls to the kernel. I'm sure with time someone will workout how to boot the eboot loader in kernel mode. The thing is that to boot the eboot loader, you'd need GTA and you'd have to boot the game each time you wanted to load anything else.
Who knows, someone might be able to work something out soon enough, just keep yourself updated.