As others have said, it really depends what you are looking for . My layout space is roughly 9x14, I built a U shaped layout with takeout bridge at the open side to allow me to have 072 and 064 on the main runs to have 2 mains (I love having trains that run opposite on the two 'mainlines'). I thought about HO or even N for this layout (I didn't really have much invested in O at that point, most of my trains were inherited or from Christmas under the tree setups).
Obviously with both of them, you can put a lot more in the given space, I could have a turntable and roundhouse which I can't do in O with the space I have and the equipment is going to be in some ways less expensive (problem with HO and n is the small size, you can store more!). Especially if you like operations, with HO or N you can do more in a smaller space like the OP and I have. S actually is interesting, because you have 2 rail trains and the size of the equipment is actually pretty close to what traditional 3 rail O was done at for the most part.
And likely even with realistic pricing of the O you have, you could offset the cost of the HO equipment you might buy.
For me, in the end I figured out that I simply liked O gauge 3 rail trains because they are 3 rail O. Maybe like my star misaligned rooting for the NY Jets, I inherited it from my dad, but I like them as they are. When I saw the video of the late Marty F's amazing layout, it kind of struck a chord in me, that he built this amazing layout that looked great, ran well, but also was still in some ways "playing with trains" (and I don't mean that in the least derogatory way,totally admiration, I meant that you could see the joy and fun Marty had with them, in everything he did on there). Don't get me wrong, I love layouts in any scale that go after realism, as a kid I read MR magazine (still do) and I do want to try and make my layout look good and at least somewhat realistic (for example, I am not using tinplate track, using Ross).
And given how slowly my 9x14 is going, how for a variety of reasons I just have worked as fast as I likely could have, I also realized that even if I had the kind of space where I could build a layout like the folks you see in OGRR magazine I likely would be even more overwhelmed.
And like with your grandad (on a much smaller scale), I have the trains that were mine as a kid which includes the stuff inherited from a set of trains my mom got my dad as her first Christmas gift to him and that means a lot.
The other nice part, as someone else mentioned, you can run your grandads trains conventionally but still be able to walk around. Using either the DCS variable outputs or Lionel Powermaster w a tmcc or legacy base, you can control conventional engines. You can even run multiple trains if you do block wiring and have the ability to run 2 trains using the handle (ie have blocks with selector switches) on 2 different loops. You can also run a conventional engine on 1 loop, and a command control on the other (if you have any). Other options are to run the trains using the 'handle' on the transformer, or possibly to convert engines you run a lot to use command via ERR AC commander.
In the end, it all comes down to what pleases you.It sounds like your grand dads trains meant a lot to you and for you it could come down to having those trains running are both fun and a nice remembrance of him too.
Another thought, if you still have some hankering with HO, the realism, large trains, etc, nothing to stop you from belonging to a train club. I have toyed with joining a club that is here in the Northern NJ area, that has a large HO layout whose expansion, well, proceeds at a snail's pace,not surprisingly. What tempts me? The guys hand laying the track, of all things....unfortunately it is relatively far away and when I was commuting 5 days a week made it near impossible..now that it is 3 days a week, might be able to swing it![](https://ogrforum.com/static/images/graemlins/icon_smile.gif)