Greg,
With regard to the sound, could you reduce the boiler length so that it does not go so far into the chassis and put a speaker in the box area left making it a sort of amplifying box?
If room is an issue I have shoehorned a Hobbyking RX into the backhead of a loco similar to a Stainz by taking off the plastic body, once the body is removed the circuit board is not that bulky and the pins can be bent to fit the plug or maybe the connection could be hardwired to the board.
It could be mounted over the PICAXE board leaving enough room for a sound board or running a parallel program in the PICAXE that is just a chuff with no variation.
Food for thought or maybe some tormenting depending on the point of view, you can chastise me on my next visit.