Yes, I do think they can compete just fine.
But I think they would do alot better without the media's constant parade of the -few- truly unhappy owners and idiot articles like:

"A/C use taxes hybrid MPG"
or
"Driving style effects hybrid MPG"

Seemingly hybrid specific.

When I bought mine back in Jan'04 the real negativity wasn't in full force yet.
Everyone I knew in the automotive hobby warned me that hybrid technology "Isn't quite there yet".

I've read countless articles of MPG's lowest side, and many of its average.
But I have never-ever, even once read an article which even slightly hints to these cars MPG potential.

After all, the very tiny few who gets even close to EPA struggles a terribly impossible fight to do so....... right?
Without the effort of grunting, blood, sweat & tears one can expect terribly dissappointing low mpg....right? (Kidding of course)

Efficient drivers do it better.
1003 miles a tank personal record. 74MPG calculated. HCH1 CVT