Nothing at all wrong with that arrangement. It gives the manufacturer the option of building and powering a 'steam' loco or 'diesel' using the same power unit. Most parts are off the shelf as well. Depending on where you are located (ambient temp) and the severity of the service (continuous duty), a cooling loop in the return line may be well advised to protect those hydraulics.

Now that I see it in the flesh, a 616 or 617 would be much too heavy for use as a prime mover.

There are dozens of small industrial diesels or gassers out there that be better suited to the application than a MBZ automobile engine. A small Deutz would be neat...no cooling system.

What sort of brakes does the loco/train have?

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Never a dull moment at Berry Hill Farm.