Thanks everyone - it sounds like the "lightly used" approach is indeed the way forward. I will be looking at the MTH range - even if I don't buy an MTH set, I think the range will be useful for expansion.
Yes we've taken him to a couple of shows - OK City last December when he was a bit too small. Then last week we went to a local show at some gardens (a show I've participated in, in the past). He was noticing the N, but spent much longer watching the G - which were at floor level, and they made noises. He seemed to react to the 'chuffing' of the steam engines.
I'm thinking of slow expansion in future years, and obviously that can follow needs and interest. E.g. a siding and freight would add play interest. Having some switches and lights could be a good introduction to electric circuits. If he likes that, then we can look at more sophisticated control.
If he gets really interested to the point of a permanent layout, then the answer is N. I have a lot of N, and have experience of kids and N from shows. Obviously he's too small for that at the moment, but I've found that if they have a little bit of patience then kids do much better with N than the standard recommendations: Kids have better eyes and smaller fingers than us adults! My test track (currently packed up after a house move) could easily be adapted to be "his layout" - shorten the legs and buy some of 'his' rolling stock. Landscaping could be a joint task.
