If the regenerative system in state 3 is powerful enough for everyday driving, and for hill descents, then state 5 should be almost as rare as idling.
The limited use of >3500RPM you describe is wise, as it's hard to achieve good efficiency at those speeds. Honda's VTEC and plenty of other variable valve timing schemes allow the camshaft to be optimized for low-end efficiency, while allowing respectable power above 3500RPM, where fuel economy is an afterthough.
The ideal vehicle, to me, has minimum aerodynamic drag, maximum engine and driveline efficiency, minimum rolling resistance, low mass, and a good regenerative braking system, in that order.
A hypermiler would find even the Insight's puny electric motor to provide adequate regen, so little energy would be wasted through friction braking. However, as hybrids become more advanced and cheaper, electric regen will become powerful enough to provide >90% of the braking for even the average driver. I wonder if the Prius is already there.
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