Then you work your way up to a proper wood and/or coal powered steam engine, then a gas can powered deisel, and if you're really ambitious, you can build electric cateneries or a third rail for an electric locomotive. The wagons will become more like proper freight cars and passenger carriages as you go along as well.
Yeah, you heard me, passenger carriages, that other players can sit in while you drive if you're playing multiplayer. Oooh that would be just magic.
Could also add railway signals to help you know the track is clear...otherwise there could be a nasty, potentially explosive accident if you got more thaan one train running around on a track!
Speaking of the tracks, you use wood for sleepers obviously, and at first regular iron for rails, but then you can upgrade them with forged iron and forged steel for lovely high-speed track.
As for how you lay the track, I want to see smooth, realistic railway curves, not janky right-angles like in Minecraft.
Let's have it so you lay track point-to-point, with a ghostly preview of what it would look like before you actually place it down, pretty much like how