RE: New engine for Jato
Yes, easily. The Jato was made to fit all sorts of engines, and the drive-train is incredibly beefed up. You will want to loosen your slipper a tad to save you from buying spur gears.
I just stuck a FR18 in the Jato, I haven't ran it yet but will tell you how it performs. (the power is around the same as a TM)
I believe you can beat him right now with your 2.5 to be honest. Remember.. the jato has a 2 speed.