I have both types, and I use both depending on what I want to check. As a couple of examples, I find the analog meter to be my preference for checking out capacitors. If I'm using an ohm scale to check for shorts or continuity, I prefer digital, but either will work fine. I think at Radio Shack you can get one of each for less than $20-$30 total.
This post is just for general information, since you have posted a plan to draw up a schematic and post it here, I would presume you are not totally "green" electrically. One caution I would offer is that some of the better quality ho scale locomotives have directional lighting and lighting packages. Some will use led's for lights, others use "grain of wheat or grain of rice" bulbs (really small). The led's will operate on 1.5 volts, the miniature bulbs may operate on 12-15 volts, 3 volts, or 1.5 volts. You generally can't tell by looking at a bulb what voltage it is designed to run on. If you have a "lighting package", it will have resistors and transistors on the board to turn on bulbs and reduce the voltage if the bulbs are lower voltage than the track voltage. You will need to determine what voltage is going to the lights to determine which bulb to get to replace it.