Larger displacement engines for better effecency?

Here is an intresting topic, we were all tought that smaller displacement engines made less power but got better fuel effecency, and larger engines would always burn more fuel, back in the days when a Holly 750cfm was high tech that was certainly the case, but now we are starting to see the opposite in many cases. I work at a chevy dealership and I noticed several examples of this. The Colorado gets Z71 better effecency with the inline 5 than the base model with the four banger, the Tahoe gets better effecency with the larger 5.3L than the 4.8, and the full size Impala with its 3.5L V6 only gets one mpg less than the tiny cobalt with its wimpy I4. The Z28 for its weight has to be one of the most effecent cars of all time, even before displacement on demand the nearly two ton cars was getting 28mpg with proformance gearing and tires!! And lets remamber that it was a front engine rear wheel drive so it had alot more powertrain loss than an FF car. I may not be an engineer but it seems to me that higher displacement engines that run much lower RPMs have much more potential to be effecent. OK here is my questions, how much energy does an engine loose in friction from the swept area, I have heard that if speed doubles the friction in the swept area is increased four times is that true?
Question #2 in the avrage engine there is supposed to be around a 63% thermal loss, say we cut the surface to volume ratio in half, aproxamatly how much more effecent would it be all other factors being equal?
Could someone build a very lage bore engine that could run highway speeds with 500-800 rpms and get better ecconomy than a Toyota 1.3L inline 4, or is there a law of deminishing returns that I am overlooking?

Lets assume that I had the resources (aka money) to build a project engine lets say I build an inline or horazontaly opposed four cylinder with an absolutly insane 7 inch bore and 6 inch stroke, we would have over 800 cu in displacement, and about half the surface to volume ratio as a 5.7L V8, mathamaticly speaking we could put it in a camaro and run highway speeds at or below 700 rpm, in addition to the crazy low opporation speed we would have an exisessve amout of power just a downshift away, I know that an engine with pistons that size and a stroke that deep probably would come unglued past 4000-5000 RPM, but the upside is that you would probably never need any more revs than that since hp is just a multiple of torque (torque=hp at around 5200 rpm) even if could only make 900 ft-lbs (a conservative figure for our project engine) and we maxed out at 3500rpm we would still be making over 600HP!!! I don't think weight would be a problem with this engine, we have about the same surface area as a small block v8 and the LS2 fully dressed weighs less than 400 lbs, so it is not out of the realm of possability to make our project engine a comprable weight. This engine could not be made street legal because of emissions laws, big bore/long stroke engines tend to have a problem with unburnt hydrocarbons, but with the advent of gasoline direct injection, and multi pulse injectors, not to mention the use of E85 a street legal engine of this type might be possable. Does anyone out there in internet land see any problems with a project like this?

Maby I asked this in the wrong place I am going to re-post it in the enginering technical forum. Go ahead and delete my thread here, this is too technical for this room.

what are you trying to say?
that we are stoopid???
J/K.