Do the soft I2C libraries work on the 16U2?
It will probably work but if it works for you depends on what you want to use it for. It's only master capable, it cannot be a slave on the bus. I used a similar software I2C for one of my projects and it worked flawlessly. However if a device depends on some I2C features not implemented in the software version (clock stretching) you won't get happy.
The thing is the application has limited space, so I can't use a 32U4 or a 328P.
An ATtiny85 is smaller than the 16U2 and has built-in TWI (I2C). Isn't that an option?