To answer ARHI. As best as possible I try to fit all the components in a ho scale train engine which is the DC motor we are controlling. It isn't always easy and once I add a sound unit.
Thanks for the explanation, and for the T1 schematic followed with good explanation. All in all, You control the onboard devices by tone that is modulated into the tracks. You extract the tone using few LM567 (LM567 is kinda discontinued, there might be some "better" chips out there) and then do a whole mambo jumbo to implement the "recognised command".
What you can easily implement is replacement circuit that will do the whole chabeng digitally without changing the drive electronics. What I'm talking about is replacing the whole T1 + power pax module combination with digital uC controlled circuit. It would be fairly easy and IMHO energy more efficient, to put a small 8 or 18 pin PIC that will get the input from few LM567C (or better tone decoder) and control everything on the train... it is natural for the uC to generate PWM to run the DC motor via L293 or L298, this will reduce the size of the T1+powerpax to 2IC's + few LM567C and few passive elements, much smaller then current elco you have, on top of that, you can change the new decoder/controller uC to decode more then 2 tones and control everything else you need controlling (you might have to move from 8pin to 18pin uC and more lm567C's but that's all) ... The whole thing can be very small if you are able to solder smd
Now, I'm not sure how much this changes the philosophy of it all, but your "base unit" that issues the commands is the same, you only change the decoder / implementer unit inside the car... but it will allow you to make pretty efficient and small T1 replacement ... only downside is that it will require some programming knowledge and some soldering skills
EDIT: what UBergeek63 is proposing is IMHO "better immediate solution" that will do exactly what you need, what I suggest is to replace "too much" in order to replace it with micro controller as I just like micro controllers
(and am terrible in simple analog electronics)