As I understand it, rotary engines are smaller, lighter, more
powerful, and more reliable that piston/cylinder engines, so why
aren't they used more often for production cars?

Here's an interesting newsgroup thread on the subject. It's nearly ten
years old, but some valid points are raised:

http://groups.google.com/groups?hl=en&lr=lang_en&ie=UTF-8&oe=UTF-8&newwindow=1&safe=off&th=74480bacbb3f52d&rnum=1

It was very much the poor fuel economy that limited rotary engines to
niche cars in North America, which in turn ultimately led to its
disappearance until the recent revival in the form of the RX-8. While
seal and engine/fuel management technology has dramatically improved
on the fuel economy of the Wankel rotary, it will remain a niche play
due in large part to the level of 'comfort' in North America with the
traditional, four-cycle engine.

"The biggest disadvantage facing rotary engines is meeting emissions
regulations. It is typically more difficult for a rotary engine to
meet US emissions guidelines. However, it is not an impossible feat.

Manufacturing costs are also usually higher than a four-stroke engine.
Rotary engines, due to relative lack of demand, are not produced in as
large a quantity as four-strokes. Therefore, the unit price is
normally higher.

Fuel efficiency is also less than a four-stroke engine. Due to less
compression and a long combustion chamber, fuel is not burned as
efficiently."

www.bbc.co.uk/h2g2/guide/A650945

All this may be true, but I want an RX-8 anyway. ;-)

Thanks guys.  Thats pretty much the answer I was curious about.

Apart from emission problems, another major issue was the tip of the
rotor wearing out - I remember the NSU Ro80 had major problems with
this, also the MX-7.  I believe Mazada have it fixed, but the damage
done put the motor industry off the idea of the rotary engine.