I am wondering if the current state of HTML5 makes it possible to edit local files
Yes and no. The HTML5 File System API spec is implemented in all the latest browsers (IE10, iOS6, Chrome, Safari, Firefox). However it doesn't give you full access to the users local filesystem. To quote the spec:
This specification defines an API to navigate file system hierarchies, and defines a means by which a user agent may expose sandboxed sections of a user's local filesystem to web applications.
They keyword which prevents you doing what you're wanting to achieve is "sandboxed". Under the covers, when you use the HTML5 file system API it will create a brand new directory for the current page to use.
This may allow you to achieve what you want, if you're happy with your page having it's own sanboxed directory, however if you're creating an IDE I suspect you want a little bit more control than this.
IDE's in the browser
There already in fact browser based IDE's doing similar things to what you're asking:
- Cloud9 - https://github.com/ajaxorg/cloud9/ - This works by kicking off a Node.js webserver and being pointed to a directory which has your project in it. The files are then served up to the browser by this browser.
- Orion - http://wiki.eclipse.org/Orion/How_Tos/Install_Orion_on_Localhost - This is an Eclipse based project which again works by kicking off a local web server and serving the files up to the browser.
My advice would be start by looking at their code bases - both are open source and in a pretty stable state. You could either branch one of them to achieve your aims, or use them for ideas for how to get started on your own.