Well Phil, basically the R E was designed as a 350 cc bike which didn't sell well in the U.S. so they modified it to 500 cc (even though in the 50s there were also modifications to that capacity). This puts more stress on the bottom end, the 350 piston, etc. being lighter and more in keeping with the designed stress level. Then, in addition, R E apparently chose a poorer quality piston which is a little like a time bomb in each of the 500s in that a goodly percentage of them will eventually give trouble. According to experts like Pete Snidal, the 350 doesn't suffer any of the stress related problems that the 500s do, and, in addition is darned peppy.
Indian 48 (Kumar) mentioned to me that he was having trouble getting the factory in India to sell him a 500cc iron barreled R E. I suggested to him that he go read all the testimony on the Yahoo forum, of which, at the particular time he was buying, there had been a lot of discussion. Both Tim Busby of New Zealand and Pete had put their seal of approval on the 350 as compared with the larger engine. Kumar saw the light, bought the 350 Electra (iron barreled in India), and has been delighted with it as compared with his 500 cc AVL Machismo.
I suppose there are places for the bigger displacement, but remember, as standard engines, they are only 4 hp different in power, and the smaller engine is much happier being wound up.
I guess this covers most of it.
Happy thumping Phil,
LJ