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Ok, I'll answer what was addressed to me.
A two stroke engine means a power stroke for every piston cycle instead of a power stroke every other piston cycle as is found in a four stroke engine. This means your engine could potentially have twice the power of a four stroke for the same displacement, all else being equal.
Over expansion is just a term to reference the ratio of compression to expansion. For normally aspirated spark ignited engines, this is commonly called the Atkinson cycle - as found in the Toyota Prius. The Prius expands through a ratio about 1.3 times greater than it's compression volume, extracting more work from the gasses. The closer your exhaust is to ambient air pressure, the more work you have potentially extracted from your fuel. Also, in your oxy/water/fuel example, the water will be easier to condense as it will be at a lower temperature and pressure.
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