Rob Strand had posted a clipper/ limiter system with diodes referenced to power supply.

This can be used to soften the output of a rail saturated LM386 (Or any other Rail saturated Opamp circuit), by adding one more knee close to each rail. For LM386, I suppose we will have to use inverting pin, Opamp style feedback as I had posted earlier.
I feel this might be an excellent idea for this purpose.