Windows - Does accessing data through "localhost" incur network stack overhead

When I make use of such a mapping, do I risk incurring significant overhead,

Yes. By using an UNC path (\\hostname\sharename\filename) as opposed to a local path ([\\?\]driveletter:\directoryname\filename), you're letting all traffic occur through the Server Message Block protocol (SMB / Samba). This adds a significant overhead in terms of disk access and access times in general.

The flow over a network is like this:

Application -> SMB Client -> Network -> SMB Server -> Target file system

Now by moving your files to your local machine, but still using UNC to access them, the flow is like this:

Application -> SMB Client -> localhost -> SMB Server -> Target file system

The only thing you minimized (not eliminated, SMB traffic to localhost still involves the network layers and all computations and traffic associated) is network traffic.

Also, given SMB is specifically tailored for network traffic, its reads may not optimally use your disk's and OS's caches. It may for example perform its reads in blocks of a certain size, while your disk performs better when reading blocks of another size.

If you want optimal throughput and minimal access times, use as little layers in between as possible, in this case by directly accessing the filesystem:

Application -> Target file system

For sure using TCP over direct file access even with "loopback" has overheads such as routing, memory allocations etc. both on linux and windows, yes loopback device is a non-physichal kernel device and faster than the other network devices but not faster than direct file access. As far as I know on windows there are additional loopback optimizations such as NetDNA and "Fast TCP Loopback".

I assume the bottleneck with loopback device will be memory (copy) processes. So directly accessing a file rather than over loopback device will always be faster (and low-resource consuming) both on linux and windows.

Additionally, both operating systems solves protocol overheads for IPC via "named pipes" on windows and "unix domain sockets" on linux, using these will also be faster than using the loopback device whenever applicable.