That looks like it would work. You would have to put the insulating pin between the two turnout sections at the joint to isolate the loops. I don't know with the Marx switches if you get power to those rails from the switch side. You want to check that out.
You can put the switch and jumper wire for all channel 1 operation anywhere on loop 2 center rail.
I get 4.5" from the center rail to the top wall and 3 3/8" from the center rail to the right wall. I would say it's plenty of space for the overhang of any non-scale engines.
