I've always loved miniatures and model trains, but they're expensive and they take up a lot of space.
It'd save money and space to use a smaller scale model, but model trains only get so small, right?
Well, that depends on how you define "model train". If you use a model train that doesn't run on its own power, you can make a really miniscule train layout. Obsessive model railroaders might object, but it looks pretty cool and your friends will be amazed! Best of all, it can be done fairly cheaply.
The technique involves drive belts, which is a professional way of saying "rubber bands". You can create or find one or more small wheels, secure them to a base (while still allowing them to rotate; that is, they have a stationary center and a rotating outer part.) and stretch a rubber band around them to form some kind of loop, then securely attach pins to the rubber band and make a tiny 1:600, 1:900, 1:1200, even 1:1500 (!) model train and connect it to the top of the pins. After that, encase the thing in wood or plastic, except for the path the train moves along, which should stick out.
Then add scenery to the surface. A fine green powder for grass, plaster powder mixed with water and painted to form mountains and terrain, tiny bits of sponge as trees, and perhaps some buildings made from tiny folded paper or other materials.
If you suck at modeling miniature shapes, you can do it in a 3d app and have your tiny model buildings fabricated through Shapeways. A building that is 2X2X2 cm - about the size we'd aim for here - should probably cost about a dollar or two, which isn't so bad. It costs less if the building model is hollow, as this reduces the amount of polymer material used. That's probably what you want anyway, if you You can order a whole batch of miniature buildings as pieces of a 3d file, have them all fabricated and mailed to you at the same time.
You can even string tiny christmas lights into those buildings from below to make them light up.
After all this, you can either turn the wheel slowly by hand to make the train move, or find an electrical device that can do this. Mini battery-powered electric fans can be modified for this purpose, though the trick is finding one that can rotate slowly enough for a nice train motion. Attaching the rotating fan piece to a heavier object - like our drive belt wheels - should help slow it down in any case.
All told, this may take a dozen hours and 0 or so to do. If you want someone else to do this, you can order a predesigned or custom set from Tiny-Trains.net, one of several sources specializing in miniscule sets like this; this'll save you a lot of time but it'll also cost a fair bit.
Still, even the 0-00 they typically charge for creation of an electrically-driven micro train layout is cheap compared to the tens of thousands of dollars often spent making a similar layout in HO scale - and it's a pretty interesting novelty item/decorative object.
You can also find a happy medium; they can rig the drive belt mechanisms but not do scenery; this can cost as little as 0, or even (if you request only the mechanism without a fitted wood shell)
This strikes me as an interesting sort of art project, one which I'm working on myself a bit. It's kind of fun.