I've seen this pop up a couple times, so I'll throw in my $.02 since I used to work at a machine shop that performed this operation; albeit for a different application.
We were building blown alcy motors for drag cars and boats. Copper head gaskets, o-ringed block and heads. The BHJ tool was the industry standard back then (it's been a decade or so since that job).
Link to BHJ O-ring tool
The rotating cutter is universal, but it requires a big aluminum plate the shape of a head gasket to locate the cutter. The big aluminum chunk was bolted to either the heads or block using the head dowels to locate it. Grooves were cut into both the block and heads, then stainless wire was mashed into one of the grooves. The idea is that the copper head gasket gets deformed by the stainless wire (the "O-ring") and mashed up into the adjacent receiver groove; makes for one hell of a good seal.
As for the IDI, cutting the heads isn't going to happen easily; the pre-chambers are in the way. But the block could be cut pretty easily after a fixture was made to locate the cutting tool. Having the O-ring grooves in the block side, and not having the receiver grooves in the heads could very well work. The main issue as I see it is what to do for head gaskets. If the O-ring was set just outside of the fire ring, it would definitely help keep it pinched in place.
The area where I am unsure of is the sealing of the water passages. The O-ring would strengthen the seal on the combustion chamber, but at the same time it would probably weaken the seal on the water passages. The stuff I used to work on were race motors; and real race motors don't have water jackets.