Well, it seems the answer of 300..400cc is about right for a good
running Diesel.

http://www.hatz.com/
lists a 232cc diesel engine, 71lbs and rated at 1.8hp,
here's the specs
http://www.hatz.com/type/1be.pdf
and its also available in vertical shaft. Runs up to
3600rpm. Makes me wonder if their injector system
would be usable in a scale engine...

Would you have access to a used one of those motors to
play around with?
--Glenn Lyford