Returning to one of the original questions posed in this thread - "Can KTM build a significantly lighter 700-800cc twin?" The quick answer is "absolutely".
Let's look at recent history. Between 2000 and 2005 KTM had only two four stroke single dirtbike engines. The LC4 and the RFS. Since then they've developed the 250SXF/XCF/XCFW engine, The 350SXF/XCFW, the 450SXF/505SXF, the 450/530 XCW/EXC, the "Dungey" 450/500 EXC, the 690 LC4, and, somewhat indirectly, the 70 degree Husaberg engine. They've proven that they're willing, and able, to design engines that are somewhat optimized for the target markets. A 700 to 800cc twin would be a piece of cake for them, especially if they take an approach that maximizes parts commonality and base the engine off of a single that they're already producing.
A similar thing can be said about the frame technology based on the evolution of the dirtbikes. Plenty of frames have been developed in recent years starting in 2005 - oval frame tubes/no link PDS, flatter section oval frame tubes/PDS, MX bikes with a linkage and enduro bikes with PDS, trellis frames for the 690 and the twins, etc. Can they produce a frame for this 700 to 800cc machine? Absolutely! Especially considering that it wouldn't be much of a stretch to develop it from the current 690 chassis.
Can they adorn this bike with the bad ass-looking rally bodywork that is found on so many rally bikes they produce? Absolutely! The tooling is already available if they base the whole thing off of the 690 chassis. As an extra bonus, they'll get more use out of tooling that's just laying around now anyway.
The big question is, will they build it? That ties in with the second question posed by Mr. LucasM. "Is there a market for it?"
The answer is - Absolutely! I feel 100% confident that KTM will make a push for the 800cc adventure bike market. However, as they've proven with the 1190, will the bike they produce be the bad-ass rally bike we're discussing here, or will it be a bike that's better positioned to compete with the BMW and Triumph 800's? Will they follow through on their claim that the 1190 engine is a modular platform capable of displacements from 700cc to 1200cc and destroke/debore the RC8 engine resulting in a middleweight machine that's saddled with engine internals much bulkier than they need to be?
The fact is that there are too few individuals who can really ride this lighter, more edgy competition machine to justify KTM going in that direction. Mark my words, it'll be a lower, heavier bike with less wheel travel, ABS, dual front disks, under-engine exhaust with minimal protection, street tires...and a friggin BEAK!