I missed the Fifth Head of Cerberus discussion as it was going on and listened to the podcasts in quick succession, so apologies if I missed this in either the podcasts or the forums, but in thinking about colonialism and psychology in Fifth Head, the work of Frantz Fanon came immediately to mind. The themes of the novella and of Fanon's work seem too closely connected to be coincidental, and if Wolfe was reading and thinking about colonialism in the early 70s, he almost certainly would have encountered Fanon. I need to revisit the texts in detail, but Black Skin, White Masks and The Wretched of the Earth both deal with the insidious and devastating psychological effects and concomitants of colonization on both colonizer and colonized. A few points in Fanon's thinking on colonialism that seem especially relevant:
The necessity of total replacement of the colonized as the end goal of colonialism, regardless of the colonizer's stated aim or motive (this idea of replacement is obviously central to the book, and Fanon's concept is perhaps being either subverted through or concealed behind Veil's hypothesis).
Speaking of "veil," the veil in Fanon's North African context is representative of the colonizer's (often highly sexualized) obsession with the "hidden" or "private" lives of the colonized, (embodied in the brothel and the demimondaines).
The ways in which the colonized (especially the colonized intellectuals) become conditioned to take on the "masks" of the colonizers because they are consistently conditioned to believe in their own inferiority (a theme which runs deep through "VRT," and applies differently depending on how you interpret the story)
The centrality of the liberation struggle to the formation of a true postcolonial identity (the hints of rebellion peppered throughout, especially in "VRT").
I'm sure there's more, but this is what comes immediately to mind from my dusty recollections of reading Fanon in college. Loved your coverage of this book!