How small of a model loco can today's ps3/ERR-Railsound fit inside?

The PS/32 board, which is what you'll be using, is 3.5" long, 1.25" wide (in the holder), about 1.1" wide if you lose the holder and go bareback.  The height is 1", but you'll need at least 3/8" more for the connectors that stick out the top.

The Cruise Commander is a bit smaller, but you'll need more pieces.  The good thing is you can scatter than around.

If the ERR Cruise Commander Lite ever gets produced again, you can go considerably smaller with ERR, but I have no idea if that's going to happen.

Here are some pics of What I am talking about....

In case one was wondering, IT's the undecorated 4-4-0.

YOu can see its near scale size dwarfing the MTH PRR D-8 on the left,

Even the tender is smaller!

originally I thought it would be the size of a Railking/Scale and have flanges like the Internation O scale Reading RR camelback kit of the 1950's.....

But NOOOOOO!

You didn't get a shot of the frame top up to see what might remain hollow.

It seems a fuel load and removing/slotting some inside tank wall might help. 

I did a conversion on a Weaver A5 0-4-0 with a standard Digital Dynamics control system, but had to modify the front of the tender.   Also did a Rich Yoder 44 tonner  Both were projects.   44 tonner was early ERR board.  Both with electro-couplers, lights and sound. 

44 tonner.  Sound board modification, I had to mount the capacitors remote. 

Weaver A5 tender.  Coal doors on the tender, front were moved forward.  

I did the Williams 44-Ton Locomotive with cruise, sound, and electrocouplers.  So, most anything is "possible".

Williams 44-Ton Upgrade with ERR CC-Lite, Sound, & Electrocouplers

The hardest part was the electrocouplers, I had to kit-bash my own mounts as the locomotive had oddball couplers.

Here's the Williams next to my MTH model.  My only concession was the couplers are a bit longer than the MTH, there wasn't any way with the existing mounts to make them shorter.