Mike;
Lathe sizes; I have 4 3-1/2" gauge locomotives here, 2 running, 1 95%, and one about 50%. Tich, continental loading gauge 2-8-2, shay geared locomotive, and the 2MT 2-6-0 "Ivatt" design, respectively.
My main lathe for this is an Emco Compact-8, but a Myford ML7 or equivalent would be just as good, or better, as the Emco does not have really slow speeds. Those little 7×12 lathes might be ok, but the Emco was copied and modified, so lots of the far-east 8×18 or 9x20s would work well.
The lathes.co.uk has a Compact-8, well equipped, on sale for what I think is a good price. Was thinking about it, as mine was well used when I got it, but getting it packed and shipped overseas… (I did find one I can drive to and acquire, so I'm set now for life, lathe wise)
I now also have a Centec 2B milling machine with vertical head.
Our club is going ground 5" and 7-1/4", so I did start a small 7-1/4". I do have a larger lathe, 11" swing, and that is required for the 7-1/4" building, and, the Centec somehow seems small for this gauge.
If you are wondering what I would do if I had to move to a smaller space? Keep the Emco, and the 3-1/2" gauge projects, and join only clubs with 3-1/2" gauge tracks, as that really is, to me, the fun stuff.
Another JohnS.