Dan P,
I agree with Marty Fitz on this one, I would much rather test the Engine out at a Train Show/Meet than purchase off E-Bay. However Rolling stock is another matter, especially new rolling stock, you can get some great buys on E-Bay. Gun Runner however is quite lucky and gets some real nice engines off E-bay at great prices, he however has the ability to fix anything he purchases that has problems. I do not recommend purchasing Engines or DCS or Legacy equipment off E-bay, way to many chances to get burned and no factory Guarantees either. If you want to purchase off the Net, purchase from the OGR members, right here on the OGR Forum, we have a great bunch of honest members here to deal with.
PCRR/Dave
While I agree with 99% of what you wrote, I would just point out that however great the members here are in general, the "no guarantees" part would apply here just as it does to eBay (more so if anyone does the "friends and family" payment on PayPal since that by definition is not a transaction for goods underPayPal's rules). Any second hand purchases are generally not waranteed by the manufacturer/importer, no matter what venue the transaction is completed (same for train shows - but you see the item in person there before buying).
The exception would be if you buy something from a sponsor or member who is an actual authorized retail establishment and the item is within the period for which the manufacturer is willing to provide a warranty. A receipt for such a transaction would then cover you if you need to seek service for a problem.
So to the original poster's question - my preference is generally for in person at train meets. I've bought stuff on-line (as recently as this week, but it was a cheap piece of rolling stock), but I'm more of a believer in seeing it in person and not having shipping abuse be a risk (or defense for those on-line who are less than honest : "it must have gotten scratched/dented, etc. due to shipping - take it up with the carrier"). For PW items, assuming you are not buying mint examples of rare items, maybe it doesn't matter as much. YMMV.
Then again, I'm spoiled because I live in Southeast PA. I have York only 2 hours away twice a year, and also Allentown (hour drive) in November and February, along with a bunch of smaller meets within an hour drive if I care to try them. If I lived somewhere like others have posted where I need to drive 2-4 hours to get to a small meet or a full MSRP LHS, it's not happening.
-Dave