No. Specifically, if the user issues the command line "cd ./foo; bar" a bash process is created that arranges for the wd to be ./foo during the execution of bar, but that cd command will have no effect on any subsequent command line (which will be evaluated by a different bash process).
If the target audience for this code were users other than just me, then it might not pay to arrange things that way, but all the motivation I personally needed to remember to treat the cd command differently while using the code I wrote was the very pleasant thought that my giving up on maintaining normal behavior of the cd command means that for my usage patterns, which again do not including using the code I wrote to interact with REPLs[1], no state need be maintained by any code whatsoever outside of the Emacs process except for the usual, expected state of the file system and any state internal to any bash processes and any of their child processes that are currently executing a command line.
Standard Gnu Emacs contains a M-x cd command, and that does modify the wd in a way that persists through the issuance of multiple command lines. (Again, I arranged for Emacs alone to keep track of the wd.)
[1]Standard Gnu Emacs contains the command M-x run-scheme, M-x run-python, etc, for interacting with a Scheme REPL, a Python REPL, etc. I do not happen to use any of them, but if I did start to use one of them, I probably would not feel tempted to re-write it the way I re-wrote shell mode (a.k.a. M-x shell) because I can think of no easy way to arrange things so that no state persists inside the REPL between command lines. What is special about interactive shells is that there is this single dinky piece of state, the wd, that if treated differently, makes the interface between the terminal or terminal-like thing and the shell process "connectionless" in the way that HTTP is connectionless: namely, after a command line finishes, the shell process and the terminal-like thing can just forget about each other.
I would imagine that this arrangement would be even more worthwhile for running shell command lines on lots of remote machines, but haven't written any code to effect it because I personally don't do that often.
ADDED. If I found myself writing "VAR=3 foo command" more than twice I would probably arrange for "VAR=3" to be permanently added the appropriate emacs variable (namely, process-environment IIRC). Basically, in my life the only environment variables that matter can be set once in a config file somewhere and forgotten.
