You'd be surprised at the care they can take... I have a 6 year old daughter that started "playing trains" with me at about 2.5 yrs old. She has a pretty good respect for the somewhat fragile nature of the trains now, and can operate pretty independently.
As far as sets go, I am not sure where you are, but the Canadian grocery chain Loblaws has their "Presidents Choice" set on sale right now for CAN$50. Not bad.
However, if you want to get into this in a more serious way, you might want to go to your local train/hobby shop and buy parts separately. Train set power packs tend to be underpowered, and the set will likely include sectional track that is not overly conducive to anything but an oval. The engines can be anything from poor to good quality.
What might work better (especially with two locations for the railroad) is to buy items, especially the power source and locomotive(s) from higher quality manufacturers. Good engines can be had from Bachmann Spectrum, LifeLike (Proto series), Atlas, and Kato.
Tell us a bit more about what you'd like to do (for yourself and/or grandson

), and we can give you some more suggestions.
Welcome to The Gauge!
Andrew