I'll have to try it out. Coincidentally, I was just yesterday fooling around with a simple script to unpack and repack an extension.
Can peazip add to (or rebuild with additions) a squashfs file?
Nope.
Extracting - even selective extraction of single files - seems to work fine, and I managed to create a squashfs using "Custom" setting from GUI and pointing to 'mqsquashfs', but to me that is more time consuming than just directly using mksquashfs from CLI.
In brief, I see the benefit in browsing contents of extensions, but even more so of selectively extracting files from an extension whenever desirable, but less so for creating extensions.