Three points I feel compelled to make.
In the long run, displacement will always win. If you can make a 4.8L engine put out 4000hp, (referring to the 4 cylinder Integra funny car:
http://www.turbomagazine.com/tech/0202tur_extremeedge/ ) then you can make a 7.2L engine put out 6000hp. This really shows that even 2.6L is more than sufficient for any streetcar needs.
Secondly, do not doubt the 7M engine. There are people well over 1000hp on this engine - the HKS drag car, the privately run drag car in Japan, and the rail dragster that fellow over in Gibraltar ( ? somewhere over there, anyhow) put together.
Why don't people use the 7M for their high performance buildups anymore? Simple. The JZ series of engines is tougher out of the box, newer, and the price is the same or less. You can buy a completely assembled 2JZ shortblock from Toyota for less than you can get a 7M shortblock,
and it comes with better components.
Remember, torque moves cars, horsepower sells them. From a rolling start, virtually all high horsepower cars are the same. From a dead stop, higher torque per pound wins.