No. During the first phase of the memory clock cycle, the 65816 puts the high 8 bits of a 24bit address on the data lines. In the Gen1 if a 65816 was installed, those bits would basically be ignored, so a 65816 in the Gen1 CPU socket can only access the same 64KB as a 65C02 is limited to.
But if that "third byte" of address data is grabbed, then rather than pump data into or out of the 64KB address space, you can have:
LDA [block],Y
... with "block" being a 24 bit base address in the direct page and Y being a 16bit offset, and go directly to where the data is located in the 16MB address space.
But you don't have to always use 24bit addresses. If you do a 16bit JMP, the 8bit program bank register provides the high eight bits, and for data read or write operations with a 16bit address, the 8bit data bank register provides the high eight bits. And for what would be zero page operations in the 65C02, the operations always occurs in the bottom 64KB and the 8bit "direct" page register provides the "middle" byte of the "direct page" operation, so basically different tasks can, in effect, each have their own dedicated zero page.
In the prototype, the FPGA grabs that "high address" data and can put it on the high address lines of the 32MB RAM chip when appropriate, so the whole 16MB of address space is directly available to the CPU.
It would also put together the "High RAM Bank" address and put the appropriate address to get into 2MB of that chip for the High RAM Bank, and the FlashROM contents (or, I guess, an alternative for the FlashROM contents) can be written into a different range of the 32MB address and be used as a ROM Bank ... and the "expansion port" Bank when the ROM Bank number is 32-255 is directed to a different zone of the 32MB RAM chip.
If an 8MB surface mount RAM chip was substantially cheaper than a 32MB one, you could say, "OK, we have 2MB for High RAM, and 4MB for soft-ROM and expansion port RAM/ROM, and 2MB left over so allocate 2MB for direct access by the 6586". And 2MB is quite a bit.
But since it seems like the difference in cost is very small, then I guess it probably does make a certain amount of sense to just max out the directly accessible RAM, and then put all of the possible Gen1 RAM / soft-ROM in the other half somewhere.