IS this possible to do?

As I used to tell potential customers seeking a scale model.  YES, I can do that.  How much time/money would you like to spend?

You would definitely need some machine tools and might need to pay a machinist for larger items.  A Unimat or similar type small lathe would be a must.

See undated article, Live Steam Models

Mamod has been making O Gauge (gauge, not scale) steam locomotives for decades.

Here's their 50 year anniversary engine from 1989:

Uses a dry fuel tablet and isn't recommended for indoor running.

Rusty

I think compressed air will be a lot easier, but steam is more fun...either will be fine..

I guess it depends on your skill level.

I could never build one, so it would be bought ready to run.

Anything is possible and this idea sounds like it could be a lot of fun to do. But considering the fact that I have about ten thousand fun ideas sitting on the back burner waiting for my present projects to get done I will be waiting for your live three rail engine on these pages completion to prove the point.

I remember back in the late 1950s, a friend of mine, who was a Towerman on the DL&W RR, had a double track 2-Rail O SCALE system in his basement. He had two O SCALE live steam locomotive models, and the DC track power operated a some sort of servo motor to control the throttle. Both models burned alcohol as I recall. 

Check this out.

http://littlemachineshop.com/p...;category=1963256891

It was designed to be made on a Unimat (3") lathe and run on 0 gauge tinplate track.

One of the Mini Lathes can be use to make it.  They are easier to find that a Unimat.