To get good MPG, you don't have to cut HP. However, you have to have a well-designed, efficient engine that scales to load well.
If we take generators as an example, we can see the advantage of diesel over gas in a huge way. For example, we have generator A (gas), and generator B (diesel), which are both capable of producing the same power, both turn a constant 1800 RPM, and both use 2 gallons per hour at full load.
However, we see the difference in the part load consumption, where something resembling this occurs:
Generator A
No load - 0.6 gph
1/4 load - 1.0 gph
1/2 load - 1.3 gph
3/4 load - 1.7 gph
Full load - 2.0 gph
Generator B
No load - 0.4 gph
1/4 load - 0.7 gph
1/2 load - 1.1 gph
3/4 load - 1.6 gph
Full load - 2.0 gph
Basically, some engines, diesels in particular, scale fuel consumption more linearly with load. The gas engine uses 50% of it's full load fuel consumption at 1/4 load. The diesel reaches 50% of full load consumption just before 1/2 load, using only 35% of its full load consumption at 1/4 load, which is much more efficient, and a much more linear usage curve.
The more linear the usage curve of an engine, the less it hurts FE to run an overpowered engine at light load, allowing a car to go fast when needed, but still return good mpg in gentle driving.
My Jeep, for example, has a very non-linear consumption curve. I actually get worse mpg if I accelerate gently around town. If I get on it harder, and let it shift around 2200 or so, allowing me to get off the gas sooner, it can make the difference between 11.5 and 12.5 mpg with otherwise identical driving in the city. Of course, this doesn't work with other cars in front of me downtown, as they typically crawl up to speed so slowly the tranny shifts at 1500 - 1600 and I'm barely touching the gas at all.