This is sort of a weird question, but it occurred to me that it might be possible to connect two different computers via a 3.5mm audio jack cable, and stream sound between them simultaneously.
Is this a dangerous thing to try? More interestingly, if I were to re-write some of the audio handling, would it be feasible to create a custom protocol to transfer data/files over this connection?
Streaming sounds from one computer to another or simultaneously isn't going to damage your computer(s). An input soruce is an input source. It doesn't matter if it's an iPod, and iPhone, your stereo system or your old WalkMan. Likewise, line/speaker output sends analog audio out. If your output device is capable of playing it, you will get audio.
I don't see how sending sounds via an analog port is an efficient way to transmit audio. Transferring the file or using something like FFmpeg to stream audio to a network port is much more efficient as there is no digital-to-analog-back-to-digital conversion that needs to happen.