It was certainly done on full size, my Fowler has one though probably more of a backup if the mechanical pump fails than the main source of oil.. My personal thoughts are that it may be a bit less effective than the usual method of having the lubricator mounted via a tee in the steam feed.
With the tee as the oil is displaced it will flow into the line of fire so to speak and get carried with the steam and shot all over the valve and droplets will also be carried into the cylinder.
With it on the side of the steam chest I feel there is a chance that the displaced oil will just dribble down the inside wall of the valve chest and eventually find it's way onto the valve and into the cylinder.
These are just my thoughts and not actually been put into practice.