WizardStan: As far as getting timidity to work in MacOSX, I haven't a clue. It should be possible but I'm only familiar with Linux and Windows. Ask on the Dosbox forums, or search through it first at least. I'm sure someone will be glad to help you.
Well, after posting my question last night I got my hands dirty and compiled my own version of Timidity. I loaded up a midi from M&M4 and WOW, you are right, it sounds much different and far better.
It appears that on Linux Timidity can be run as a daemon that handles the ALSA midi sequencing. However, OS X does not use ALSA, it uses Mac's CoreAudio framework. I did a bit of searching but I could not find any way to redirect MIDI sequencing with CoreAudio.
Now, earlier versions of OS X (10.2, I believe) allowed you to specify your own soundfont, which would basically do what I'm looking for here, but it seems that Snow Leopard no longer allows you to do that.
Just as I was about to give up and go to bed, though, I found this little nugget:
http://sourceforge.net/tracker/?func=detail&aid=3161987&group_id=52551&atid=467234 Apparently someone has made a patch to modify DOSBox for Mac and allow you to use one the fields for a different purpose: to indicate a specific soundfont to use. At heart, it's still using CoreAudio to do this, though, so perhaps there really is a way to get CoreAudio to use a different soundfont permanently. In either case, the patch may allow me to get the enhanced midi experience you've now made me aware of.