1 liter, 200 hp, 50 mpg...
not as unlikely as you think.
Saab has a prototype motor that is sending the automotive industy into convulsions. It's called the SVC or Saab Variable Compression motor. It is almost a conventional design, except for one thing: the cylinders are built into the head, creating what Saab calls a [i]monohead./[i] A type of rubber bellows between the monohead and block allows them to effectively alter the compression ratio of the engine by tilting the monohead back up to 4 degrees. At low RPM, the engine runs at 14:1 compression, gradually lowering to 8:1 as RPMs rise. Additional power is achieved as compression drops thanks to a supercharger that miraculously cranks out 40 psi! The s/c alone is worth looking at, but the whole package is extremely impressive: 225 hp, 224 ft/lbs from a 1.6 liter DOHC inline 5. Mileage is somewhere around 60 mpg (an estimate since it's not actually in a car yet), but Saab projects 80 mpg out of the final product.
If this all pans out (and it probably will), the internal combustion engine may have another 100 years worth of steam in it. Many futurists say that they'll go the way of the dodo in the next 25 years, but compare an 80 mpg 225 hp car with the slow-as-molasses hybrids we have. Battery technology has made some major advances (mainly materials), but not enough to make purely electric vehicles feasable for most drivers. As engines become more dynamic, the massive energy potential of petroleum is better utilised in our cars.
Of course, engine development could go the other way entirely. With the ongoing development of CVTs (continuously variable transmissions), we may end up with diesel engines that only operate at a specific RPM, and let the transmission do the rest of the work.
Personally, I think that hybrids could be a good thing, if manufacturers are smart about them. Acura supposedly has a car in the works that exploits the low-RPM torque of DC motors and the high-end power of a race-tuned gasoline engine. Something around 400 hp total. Using a variable compression engine along with some powerful electric motors, you could have one mean hybrid. Pipe dreams, perhaps, but we can hope.
Sorry, I know that was entirely too long. But don't worry, you'll get over it.
P.S. - I don't know if I'll ever get there, but I'm hoping that someday my 1.8 liter will put out ~300 hp and get 30-35 mpg. It's really just a matter of how much time and effort you put into the engine. Production engines will always be less powerful and less efficient than they could be.