in your space
since you have about 3'3" by 3'6", I will ask a couple questions:
1) do you _want_ a loop?
2) how much HO stuff have you purchased?
If you don't want a loop, you can make a pretty nice 'swiching' or 'shunting' layout in that space, though you'll want to keep your rolling stock short (0-4-0 and 0-6-0 Steam Switchers, SW9/1200, and RS1 Diesel switchers are your best bet, along with mid-20th century 40-foot cars.)
If you do want a loop, you can squeeze an 18" radius circle in that space, with a curved re-railer/terminal, or a 15" radius short oval with very short straights. the 15" circle would again require some very short engines.
A circle can still work fine as a place to add scenery, as long as you accept that you'll have an 'under the tree' look (some people would rather concentrate on the scenery and don't mind a simple loop of track)
If however, you DO want a loop, and something more complicated, I'd reccommend N-scale, where your space is enough to have an oval and a few sidings without much difficulty, which is why I asked how much HO you already have. If you don't have a ton of it, its not too hard to switch scales.