yeah, HO is smaller I think. I have an O gauge xmas train that always feels about the right size for 40k sized mins. But most O gauge track has 3 rails, the middle one is to send the current to make the train go. There are companies that make special 2-rail O gauge tracks but you would probably only find that in a specialty train shop, or order it online. I think Atlas makes 2 rail track.
For the train itself, look for an old Lionel General engine. They're pricy if you buy them new, and usually happy colors that aren't realistic at all, but if you keep an eye out on ebay you can find one used that you can repaint. Been meaning to look for one myself, I saw one once that had a broke engine go for $20 and I was too dumb to buy it at the time.