I loved the Clone Wars episodes involving the Zillo Beast from Malastare and moral issues it brings up in harming an innocent being, Palpatine wants to have it killed so that he can use its armor for the Republic's ships and Clone troopers, in the end the beast is killed because it gets loose and has to be killed and because Palpatine doesnt want it to live. Which is sad but he also implies that he wants to have the Zillo Beast cloned which would certantly work although its huge size would make it hard for the Kaminoans to grow one, it would rapidly outgrow the cylinder, but we never see much indication that Palpatine had it clone, unless you count the beasts on Byss that Lando and his men had to fight in Dark Empire 2, so maybe Palpatine had one there guarding the Clone labs and vats, one with its DNA altered to make it more docile, but what else would Palpatine do with the Zillo Beast if he cloned it? Its armor was certantly good. At any rate the Zillo Beast if it had never been disturbed would have made a great weapon against the Yuuzhan Vong, if they invaded Malastare and disturbed it and woke it up it would wreck havoc upon them, because they would not have technology or the means to kill it at all, which makes them defenseless against the Zillo Beast, who would have driven them offworld, so it would have made a great weapon against them.
I certainly do like the idea of one such cloned beast being kept on Byss and being unleashed on Lando's team. Not so sure about if it would have been an invincible weapon against the Vong. The Vong were bio-experts so I wouldn't be surprised if they developed or had something that could tackle the Zillo Beast. Or even have something to knock it out so they could use it to breed their own beasties with such qualities. Though I would imagine it would certainly put up a good fight in such a battle... Zillo Beast versus Fire-Breathers... sounds like a Godzilla movie to me.
Nothing's been stated about it so far, but give it time. It's the kind of thing Rebels may harken back to someday, and frankly, that's about the right place for a story like that. If he ever did use it, it was probably in an isolated planet against a simple rebellion, and it may or may not have been effective.
I think it was just meant as an homage to those old B-movie cliff hangers where we find out the monster isn't really dead! They could always do something with it, of course, but I don't think we were supposed to expect the Zillo Beast to actually return based on that exchange. Could be wrong, though!
Sith alchemy! We know Palps wrote a book (The Creation of Monsters) about creating and tempering with powerful beasts via Sith alchemy. So maybe he used the Zillo beast as a research object to hone his alchemy skills, turning it into who knows what.
