I may be way off here with this assesment, but I think HDs size increase has very little to do with making HP/TQ, and a lot more to do with meeting EPA guidelines. As the EPA restrictions get tighter, the fuel setting gets leaner, and the timing gets "adjusted" too. So to make up for the losses caused by this, the engine gets larger.
First there was the EVO. An excellent carburated engine. Sure some of the early ones had case problems, but by and large it was a good engine. There are Evos out there today that put out more HP/TQ than some TCs. Then the TCs came out and they all ran hot to meet EPA. Then HD went with FI, first the M&M crap, then Delphi, once again to meet EPA. Then they had to add O2 closed loop to continue to meet EPA. The FI 88s ran hotter and leaner too. Now HD comes out with the TC96, and once again the 96 is one of the hottest running bikes on the face of the planet. Many of them just shut down due to heat management issues. In my opinion the added inches is an attempt to make up for more losses due to EPA. Water cooled is here in the version of the V-Rod.