looking at the very current and very genius Fiat Twin Air engines i have to say that very refined turbocharged small displacement/ few cylinder engines are actually the next step over the overly complicated hybrid systems
The Twin Air is
conceptually brilliant... but its real world numbers haven't anywhere near matched up to Fiat's official figures
(68.9mpg official - 35.7mpg real world, neither of which are particularly brilliant to begin with) and there lies one of the problems with small capacity engines, in anything other than ideal test conditions
(i.e. rolling road), it is extraordinarily difficult to even approach the officials figures in everyday conditions, because put simply, they have to be razzed.
Like what you've said though, there's a compelling argument to be made that a diesel-electric hybrid
(like VW's XL1 Concept), with energy recovery would probably be the best arrangement
(particularly for an urban car), in this instance the diesel engine is isolated from the actually drivetrain
(reducing NVH etc) and the electric motors counter the age old argument of petrol>diesel refinement.
I do think that smaller capacity, fewer cylinder engines are the way to go, but only if the absolutely most important factor is addressed first, and that is one of
weight, until then...