Most of the LT-40's I've seen would probably fly on a .25, given sufficient skill and patience.
(perhaps even a .15, given a calm day and sufficiently patient pilot)
It will fly on the .32. The takeoff rolls will be longer, and you'll have to
watch the airspeed a bit more, but it will definitely fly.

See if you can adjust the battery location to get the CG forward, if it really needs it.
Yes, you can mount the engine far forward on the mount. You can also buy a "heavy hub"
to replace the propnut. They're generally brass, and good for a couple of ounces.