What size mash tun for a half batch (2-3 gallon) brew?

I do a single step mash, heating the water on a propane burner and adding it to the cooler then waiting the appropriate amount of time. I then do a two step batch sparge.

In this case the size of the mash tun will simply make it more difficult to maintain the mash temperature, but it's still do-able. Coolers tend to hold their temp very well, but the increased air volume from the decreased mash volume means the air will leach off more of the temperature from the mash. You can adjust for this by simply heating the water a bit more before dough-in. Exactly how much depends on the cooler itself and how efficient it is, so you'll just have to experiment with a good thermometer. I'm guessing it won't need much more than an extra 5 degrees F though.

That size will be fine, especially if you batch sparge. If you fly sparge, you may find the grain bed depth a bit shallow, which could negatively impact your efficiency. If you batch sparge, you don't have that problem. Holding temp shouldn't be too big a problem and if it is you can wrap your cooler in a blanket or sleeping bag to help hold the temp.

I've recently been asking much the same question and the consensus seems to be that for smaller batches, its better to just do Brew In A Bag rather than use a larger mash tun.