My plan is to put each HO/ON30 Rail in between the center and outside rail, as I figured that would be the easiest thing to do, and it would allow me to minimize the modification needed to the track, but like I said, my biggest worry if I do this would be clearance for the underside of either locomotive. if the Narrow Gauge rails are too low, than the ON30 engine won't sit correctly on the rails. if the rails are too high, then my O Gauge Engine won't sit on the rails properly.
Use the same size rail. If you buy 2-rail Atlas, buy enough extra to strip the rails off some of the sections and glue tot he ties at the right gauge. You'll need to get an HO gauge tool (or 3), but they are cheap and plentiful. Again, it's the switches that create the complications.