Yes, the decoders are installed in the the locomotive. The DZ125 in the boiler was previously installed in there to control the motor and lights, and I just recently installed the TSU-750 and speaker in the tender for the sound. Had to remove the weight section in the front section of the boiler for the decoder, and the weight in the tender to make room for the decoder and speaker.
My layout is not that large and I tend to run shorter freights (10 cars on the average) and passenger trains at about 6 cars long. This length seems to look realistic on my layout.
My layout is in the modern era, so I treat the steamers as "special runs" on a modern layout - so a short photo freight or a short excursion train feels about right. I would imagine that I could probably pull a longer length train, but have never really tried on my layout with my steamers.
I am quite satisfied with the performance of the locomotive - now that I have the drawbar properly installed!
Thanks,
Bart