I wonder how differently the Austro engine design varies from its Mercedes automotive origin...
Funny enough, the Austro Engine AE300 is much closer to the Mercedes A class engine than the Thielert engine. Thielert make a lot of lightweight parts whereas Austro go for the original parts, e.g. the steel crankcase. The AE300 is therefore much heavier and also larger than the Thielert which they compensate for by having a higher BHP rating. Their upcoming 6 cylinder monobloc engine also looks scary (based on a tank engine)
IMO not much is wrong with the Thielert engine, their business case was just a tad too optimistic and they got into this useless fight with Diamond which resulted in the wasteful development of almost the same engine from scratch. Their model was absolutely great: you pay a fixed price per hour and whatever happens, Thielert would fix it. One could argue that Lycoming are still in business because they make customers pay to fix crappy products (remember the crankshaft AD?).
Both Thielert and Austro Engine are based on an outdated Mercedes engine (OM668, known as A 170 CDI). Thielert have always said this wouldn't be an issue because they manufacture most parts themselves and once Mercedes is out of supply, they would produce/source the remaining bits themselves. Given that their engine really is very different from the stock Mercedes, this always sounded more credible to me than the Austro story.
Car engines will always require a gearbox and that is a serious weak spot. Look at Thielert's 300h interval (is it 600h now? Update: according to their website it is 600h as of Dec 19, 2011). I don't think that's because Thielert engineers are incompetent.
Porsche had similar issues with their PFM3200. They had to call back all planes and replace the 2 blade McCauley props with expensive composite 3 blade MT props to reduce vibration which would kill the gearboxes. The PFM3200 is a good and reliable engine and we'd probably flying one today had Porsche stayed in that business.
One could argue that engines with gearboxes will never succeed but one could also argue against that. There are some geared Lycomings around (Cessna 421, old Aero Commander) and even the big turbine makers are working on geared turbofans.
Something like DeltaHawk/Gemini/Zoche would be ideal but it will be hard to get to a reliable and affordable product in such a small and conservative market. Let's hope the military will pour many millions in those projects.
I agree with Peter that small turbines are most likely not the future. A turbine gets much less thrust out of a liter of fuel than a piston engine and the smaller it is, the less efficient. Turbines are very well researched and no breakthrough discoveries to be expected.