3HP won't run much more than a small microwave, and as Bob mentioned it isn't going to make much heat, maybe 5-7KBTU/HR from the cooling system. I would not go any less than 6HP. 6HP will net you 3KW of electric power, and probably a little more than 15KBTU of useable heat per hour at full load from the cooling system. It is also large enough to be usefull at a reasonable cost even if you never decide to invest any more time or money on a larger unit. It is good to have a usefull tool to experiment with if you have to convince a significant other of the worth of this project. I didn't truly get the nod from the wife till the first time that our lights were on, and everyone elses were off... I run a 6/1 listeroid and am very happy with the output in electric and heat to meet my backup needs. A 6HP china diesel should be able to get you a similar output.
The engine that Lowgear linked to on E-bay is from the same gentleman in Portland that Bob mentioned. I bought my 6/1 and my ST-5 generator thru him, and have absolutely no complaints. He stands behind what he sells, and your shipping would consist of driving there to pick it up...
As for a twin roid, I would buy 2 singles before I bought a twin, but that is just my opinion:)
Good luck on your project.