Toyota Central R&D Developing Free-Piston Engine Linear Generator (opens in new tab)

Two stroke engines are actually smaller, cheaper, and more powerful than four stroke engines of equal displacement. The issue with two stroke engines is cleanliness. Because there isn't a spare cycle to push all the extra unburned particles out of the chamber and let only clean air/fuel into the chamber, there is some loss of power efficiency due to the attempted combusting of leftover particles. This is more than mitigated by having double the amount of power strokes per equivalent displacement. There's actually some really interesting design techniques that have been used to "coax" the waste particles out of the chamber, take a look at MotoGP technology circa early 2000's if you want to learn more.

My bet would be that using a two-stroke cycle allows the piston to stay lubricated without using a sump for oil.

>I predict these won't ever be smaller, lighter and cheaper than traditional design with an rotating engine and separate generator.

it most possibly will. The reason is that traditional design was built for actual mechanical spinning of the wheels with all the trade-offs coming from it. Generating engine has completely different requirements which would drive trade-offs and optimizations. For example, you can run free-piston at much higher rpm, thus mitigating the inefficiency of magnet/wire usage. Higher rpm would lead to less weight for the same power. The pressure/volume curve can also be optimized and shaped instead of the sinusoid forced by the rotating movement. Etc...