I'm generally supportive of SQLite's NIH syndrome---which is normally bad, but it can work if the trade-off is well researched and the resulting product is of high quality---but this one is not. Specifically sqlar is a worse replacement of ZIP.
It lacks pretty much every feature of modern compressed archive formats: filesystem and custom metadata besides from simple st_mode, solid compression, metadata compression, encryption and integrity check and so on. Therefore it can only be legitimately compared with ZIP, which does support custom metadata, very bad encryption and partial integrity check (via zlib) and only lacks the guaranteed encoding for file names. Even ignoring other formats it is not without a problem: for example the compression mode (DEFLATE vs. uncompressed) is implicitly indicated by `sz = length(data)` and I don't think it is a good idea. If I were designing sqlar and didn't want to spare an additional field I would have instead set sz to something negative so that it never collides with the compressed case (of course, if I had a chance I would just add a separate field instead). Pretty disappointing given other tools from the SQLite ecosystem.
To add to that list: when you do a .tar.gz, the compression algorithm works across file boundaries (very useful when you have a lot of small files), but neither sqlar nor .zip does this.
I think the idea of using SQLite as an application file format is excellent, and it's great that it can serve as a general store of files. As a general purpose compressed archive format, however, I agree it leaves a lot to be desired.
Yeah, I even think a full file system based on SQLite format is possible; pretty much all ingredients are there, just waiting to be cooked. But it should have been cooked in the first place.