Go with the Lionchief. Lionel also has Lionchief Plus engines with electrocouplers and sound features for a great price. Since you have kids, I'd also recommend a few interactive accessories such as a milk car, gantry crane, coal loader, etc. Your kids would have hours of fun. Plus, you mentioned that they like mechanical stuff. For power, your existing AC transformer will be perfect for track power, but I would recommend a CW80 or GW180 since they have higher amperage and accessory power ports as well. You can continue to use your existing transformer for accessories or switches. Speaking of switches, your kids might like a few on the layout so they could switch cars and work the industries.
As for Legacy, it's expensive, but totally worth it. I've been a Legacy user for almost 2 years, and I love it. I would totally recommend Legacy or any command-control system to anyone.
