There is absolutely no room in the engine compartment! The Bipe is a Sportster 40 which was built in the early 90's by a friend. There's plenty of room behind the firewall which is where the fuel tank (8 oz) and old 4.8 V batt was mounted. I will do the same and design a mounting similar to what you suggested.
While were here...The engine is an old Enya 45 model 5001. It started right up after I cleaned the grime it collected stored in my friends garage for so many years. Was running strong while i was adjusting the needle and then the nut, washer and prop came loose and flew a across my garage! I've had it running previously and failed to check the nut for tightness. Is it common for a 2 stroke to do that? I know my 4 strokes do on occasion.