[Estelyn Telcontar]

What an interesting topic, Legate! You are certainly entitled to take seriously any anachronisms metioned in the books on the basis of Tolkien's own "translator conceit" and Red Book concept. After all, though he made a number of corrections and revisions in later editions, he chose to leave such references in the stories! Isn't it interesting that we have more difficulty accepting an express train in the context of Middle-earth than talking dragons?!

Under this assumption, I am inclined to agree with your idea that such inventions came from the Dwarves. [I have explored that idea with another anachronism, Bilbo's clock, in my fan fiction, but won't interrupt this train of thought with a new one right now. (Pun unintentional but appropriate!)] The underground mining would have been an excellent and fairly secret location, and as you said, the coal as a fuel source was there, as well as metals for tracks.

How did the Hobbits get to know about it? Well, dwarves travelled through the Shire frequently - and Bree, for that matter! - on their way to and from the Blue Mountains, so some Hobbits will have traded with them and perhaps gotten to know them more closely. I would imagine that none of them ever experienced a train personally, but heard about them and spread the word to other Hobbits as a legend. It could well have been that they were the bogeymen for little Hobbit children, as you said!

I think that the cons are too strong to have allowed for a train in the Shire, and I doubt that there would have been any in enemy lands, as the Fellowship travels through those countries, with their route being documented quite extensively. But who knows what tunnels could have been hidden in Moria and other Dwarven fasts?!