My wife and I are big model railroad fans. Her real obsession is Dept. 56 stuff - you should see our house during Christmas.
Anyway, we've toyed with the idea of a garden railroad. What I've found is the good stuff is REALLY expensive. I've seen engines going for $4,000. Don't get and use brass engines or cars for an outside railroad (obviously), and avoid any sort of incline, as it will give the engines a very short lifespan.
There are starter kits out there - basically circles and ovals - but evidentally the transformers that come in these kits are quite strong and are able to pull the engine 50 or so yard-long layout.
Be sure and post what you come up with. It's definitely a cool idea for one's yard.