Your calls for smaller electronics and batteries in "O" gauge engines are already possible. You just need to look outside your Legacy and PS-3 systems paradigm. Here is an MTH GP38 I upgraded to battery power.
More than 3 hours continuous running on a charge, Onboard charging (no removal required), PCB protection from over charge / discharge / short.
Much smaller footprint, provides Loco control, features control, sounds (downloadable and/or custom made).
If interested in more info, just search on this forum for RailPro and ron045 in the advanced search and you will see my two projects.
Ron