flat four (to fit the prevailing aircraft nose and nacelle shapes)
air cooled (less to go wrong)
Agree with the rest of your design points, but not with these ones.
As far as I can see, the original reason for having a flat four (or six) is, indirect, because gearboxes simply were not strong enough to deal with the horsepowers and the harmonics involved. So you have to have a direct drive engine.
In most GA aircraft, you will want the prop shaft to be as high as possible, partly to give the prop the greatest ground clearance, and partly to align the thrust line with the drag. If you were to use an upright line or V engine, the cylinders would block the pilots view. An inverted line or V engine has been done, but has problems with hydraulic lock and plugs fouling. So a flat four or six was the best solution at that time.
Today gearboxes are strong enough. At least, Rotax and Thielert think so. This means that the crankshaft can be lower than the prop shaft and having an upright line or V engine is not causing sight problems for the pilot anymore. Plus, the crankshaft can now run at 2.5 to 3 times the speed of the propshaft, so the internal displacement of the engine can be much smaller while still producing the same amount of horsepower. So the engines external dimensions will be smaller as well.
This means that you can fit a modern upright line engine in approximately the same space as a traditional flat four. Take a look, for instance, at the Thielert retrofits (or even factory-standard) for the Robin DR200, the PA-28 and C172. The cowling is almost exactly the same size/volume. It just has air intakes at different locations.
As far as water vs. air cooling is concerned, yes, air cooling is far simpler. But air is a lousy coolant and equally doesn't retain heat very well. Also, unless you start adding cowl flaps, you don't have much influence on cooling effectiveness other than by flying faster or slower.
Water cooling is more complex and there are more things that can go wrong, but it is also more efficient (less surface area required transfer the heat, so no cooling fins and a smaller engine) and by retaining the heat longer, makes the engine far less susceptible to shock cooling. And you can mount the radiator at the location that aerodynamically optimal, instead of having to force air into whatever location the cylinders happen to be. Add a thermostat and you've virtually guaranteed that the engine always runs at its optimal temperature. (My VW Diesel is something like six years old now and I have never seen the temperature needle NOT on 90 degrees, other than while warming the engine up. Regardless of how fast I drive, how warm or cold it is, how much load I carry. It just never moves. Try that with air cooling.)