Guys, thanks again for all of the good advice. Time seems to have flown by the past several weeks. We ended up doing something else for his b-day, putting off the train until Xmas. He really wants the Polar Express and given it’s his first set, making him happy is first and foremost for me. So it looks like the Lionel O-gauge set it is. I can get it for $200 so it’s not the end of the world. Maybe down the road (and in a slightly bigger house!) we’ll get him going with an HO set as well.
That’s a good choice for his 5 year old Christmas I’d say. Actually, I do believe that’s what we will be getting our 5yr old as well this Christmas. Where can you get one for $200? I can find them no cheaper than $250.
Anyway, as for the HO size, I bought my son a Bachmann Thomas the Tank Engine “Annie and Clarabelle” set for his birthday last year (4 yr birthday) to see how he liked it and how he handled that size), and here’s where we are today!!!:
http://www.youtube.com/watch?v=Mxi5OvxFh60
It’s no where near the standards of what most of the people here model to, but it’s a work in progress and frankly I have no clure what I’m doing. I’ve never done this before. I saw some pictures on the Bachmann website of their “Sodor island” 4x8 layout exhibit layout they built to take to shows to shows of their Thomas HO products and I thought it would fit what I wanted to do for my son perfect. PLUS… I get to also run trains I like on there also. 
So, I thought to myself, “Hey, i could probably pull something like that off… so off I went.” The main thing is to just have fun with you son doing it. Those are the memories he’ll carry with him.
Chuck