I can't imagine it's a running engine, that would be nuts if someone hand built a functional engine from scratch just for the sake of a model. Definitely a cool piece though.
The smallest rideable mini-bike I've heard of is this
That is cool, lots of work went into that if it actually runs. Here is a video about a gentleman that made a scale model of a the Ferrari 312 race car. It's a fully functional model that he copied the design in part by just using photographs! http://www.youtube.com/watch?v=QDZICiGmDxs
I've always wanted to build a mini-bike like that... though I NEVER would have considered building a micro four cylinder engine! Still, that is epic as hell!