Do two stroke engines for small aircraft suffer from degradation between overhauls? Do two stroke engines for small aircraft suffer from degradation between overhauls?

For an automotive engines you can usually expect it to retain most of it's power between services for a long time until a specific failure occurs. During the time between overhauls on a small two stroke aircraft engine like a microlight, does the power available drop noticeably over time and increase after an overhaul/rebuild? Seeing as these only have a small power available to them to the begin with, as in 20-60hp, and this is in turn reduced with altitude, you would have to adjust your flight planning to compensate.

The other option is to have the TBO set to make sure things are changed before power loss becomes an issue, but this would necessarily involve changing out components while they still have usable life in them.
Don't overthink this stuff.

If the rings are good and there are no other abnormalities, there's no reason a 2 stroke shouldn't put out rated power over its service life.  And you would confirm this with a compression test periodically and a quick run at full throttle, while tied down, to check the static RPM.  With a fixed pitch prop, if the power output is down, the static RPM at full throttle will be down, assuming temperature and altitude are more or less the same each time.

Engines like the Rotax 582 were typically overhauled frequently by 4 stroke standards, something like 300 hours, due to potential fatigue on the crankshaft, not from performance degradation.  Possibly the newer versions are being run longer than that.  I've heard that some guys are running them to 500 or more.

So if you maintain the engine, don't allow it to overheat, do a compression test periodically, say every 25 or 50 hours along with a static RPM check at full throttle, you can assume the engine is making rated power and overhaul it only if it fails those tests or has reached the recommended rebuild interval.

And in your flying, don't put too much trust in those engines. It's not the power degradation from wear that'll get you, it'll be the thrown rod or seized piston at the worst possible time.  They are much more highly stressed than 4 stroke aircraft engines, which live a much easier direct-drive life and have really beefy components.  I would NEVER fly a 2 stroke beyond gliding distance of a landing spot.  The saving grace of ultralights is the fact that you can put them into very small spaces when the unreliable 2 stroke lets you down.