I meant is the 4x7 layout for your son "changeable", or does it have to remain unaltered (i.e. in its current form)?
While you have room for big benches in the left room, I would not suggest that you try anthing like the 5x6 foot bench. It will be difficult to reach to the back, and that's undoubtedly where you will have the most derailments...!
Would it be possible to move the table saw and tools into the right side, and use the entire left side for the train room? This would help with three things:
1) You'd keep any sawdust making equipment separate from the trains.
2) You would not have to go through the walls.
3) Avoid having to incorporate an existing bench.
As far as coal versus logging, a bit of research is easy enough to do, and will help you get a handle on the industries.
Coal hauling roads are pretty "dedicated" in that they often move coal from mine to a single large customer (or customers). This can be nicely modelled with the "loads in-empties out" scheme. A different aspect of this in your chosen time frame (circa WW2) is the local coal dealer who sold coal for household heating. By 1950 this was in severe decline due to switching to fuel oil, but the local coal dealer may have added this to his available products, along with cement, salt, gravel, or any other bulk commodity as his business was set up to handle bulk loads.
Logging involving trains was generally in decline by this point too, as roads got better, and trucks did too. Not to say that it did not exist. If you'd like to look at some great logging layouts, google "Paul Templar" and look at his work in a variety of scales.
Your idea for a small town with a sawmill, passenger station, and engine servicing sounds great. Did you want to focus on western or eastern logging. The western might afford more opportunity for mountains, but the eastern terrain (New England) was/is pretty hilly too...
Andrew