HO layout recommendation

Don't know how old your little boy is, but have you considered "play value" vs "watch value?"  The smaller scales will give him more "watch value" per square inch of available space, but it will be harder for him to actually play with the trains.  I would recommend O gauge size and equipment, specifically Lionchief type Thomas the Tank stuff.  They (Lionel) have also made a lot of other fantasy stuff (Disney, Harry Potter, etc.) allowing you to introduce other equipment that might keep his interest.

At this size and control level, he should be able to fix small derailments, easily operate the equipment and accessories, and do things like add dinosaurs, trucks or people to gondolas and hoppers to move them from one spot to another on the layout.  Because playing with electricity can always be dangerous, you might also want to build in a "hidden" master on-off switch for the whole layout to keep him safe.

Finally, please remember this is just an opinion being offered.

Chuck