Previously I tried another approach: using an LM1881 sync separator IC I extracted the timing signals from a composite video source and used a microcontroller connected to an AD724 IC to generate the composite video I wished to overlay. Using a fast switch, I was able to switch pixels.
The challenge with this approach is that both the overlay and source video need to be in phase with each other. Composite video encodes the colour using a phase-modulated subcarrier. This remarkable achievement allowed colour TV broadcasts to be watchable on the black and white sets that people already owned (and black and white TV to be watchable on a colour TV set). But it also means you can’t do simple pixel switching with
colour composite video signals. If the subcarriers aren’t in phase with each other then the colours will be wrong.
Daryl Rictor determined that using an MC44144 you can generate a clock signal which is in phase with the colour subcarrier. And if you use that to clock an AD724, you will have video in correct phase with the source that you wish to overlay. I was able to confirm that this does work, but I decided not to pursue it for two reasons: firstly the MC44144 is an obsolete part, and secondly it only works reliably for NTSC video (we use PAL in my part of the world and I want to support both standards).
I believe it could still be a viable approach if the problem with PAL can be solved, but my prototype had 5 ICs on a breadboard not including the microcontroller and I have my doubts that it could be made small enough.