Verified answer

Hello,

It is basically a -tai form of 'Iru', even if the verb doesn't stand alone here, as 'to stay', but has an auxiliary role in the Progressive. So, assuming ''Dakishimete iru' as the progressive form of ''Dakishimeru'', Dakishimete itai, is, in turn, its 'desiderative', -tai form.

So it would imply, as you suggest, a meaning like ' I would *stay* embracing you / 'I would '' to be (continuously) embracing you', rather than a simple statement as 'I would embrace you', meant as the utterance of a merely temporary wish, restricted to 'now'.

This form could be un-heard of, depending from the semantic of the concerned verb, the more or the less it allows a sense of 'duration' ,to be linked to the wish/desire.

You can find and compare the same usage in this example

こうして二人でずっと海を見ていたいね = I could stand/sit here with you forever, just

gazing off into the sea (from this page http://www.google.com/url?q=http://www.tanos.co.uk... ) or this one 彼はよく探偵小説を読んで何時間も座っていたいたものだ from here http://www.google.com/url?q=http://www.tanos.co.uk... )

Yet it can't be assumed that -te iru forms are in any instance the equivalent of a Progressive Form: they can carry different nuances, too, as explained here

http://www.google.it/url?q=http://homepage3.nifty....

http://www.google.it/url?q=http://faculty.washingt...

But in this case, it seems a simple progressive, in the -tai form, just as you have already suggested.