A quick follow-up to Mark's note - lots of nice links - thanks!

Diesel hybrid systems for city buses do operate the diesel engine at
peak power production - essentially running continuously  or near
continuously at a constant rpm to maximize efficiency. There are
several such buses in the Portland, OR fleet (TriMet).
The diesel engine is connected to a generator that only feeds the
battery pack - i.e., it is completely out of the drive train. The bus
is driven by an electric system that is fed by the battery pack. In
the case of the TriMet buses, the batteries are located on the roof.
This arrangement allows for a much smaller diesel engine, reduced
maintenance, increased engine life, reduced emissions, etc.

http://www.regtech.com/

Above is a link to company with a promising rotary diesel engine
design:  40+ HP in a 6" x 6" package. The claim is the design is
easily scalable. One of the applications papers on the site describes
the type of hybrid system above that could be adapted to passenger
vehicles owing to the small size of their diesel design.

Ron Johnson
Portland, OR
'91 Weekender
'04 Prius (& former '01 Insight owner)