Windows 3.1 removed real mode support thus breaking compatibility with Windows 2 and Windows 1 apps.
That's just not true. Windows 3.1 removed real-mode support in Windows itself -- in other words, the last version you can run on a 8086 CPU is Windows 3.0.
But pre-3.0 16-bit Windows apps certainly didn't stop working.
The trick there is that there is no such thing as "real-mode windows applications". The 16-bit ABI is essentially same regardless of whether windows run in real mode or protected mode.
That's just not true. Windows 3.1 removed real-mode support in Windows itself -- in other words, the last version you can run on a 8086 CPU is Windows 3.0.
But pre-3.0 16-bit Windows apps certainly didn't stop working.
Also, present-day x86 CPUs definitely can run real-mode software using virtual 8086 mode: http://en.wikipedia.org/wiki/Virtual_8086_mode
This is the same mode that Windows 3.x used to run multiple real-mode DOS apps simultaneously on a 386 processor.