I picked up a train set off of Craigslist this week (1985 Santa Fe powerhouse set) the engine that came with it runs but very slow start and rough grinding noise. Almost smells like burnt electrical. I am not sure how or if it is worth fixing. Also the light burned out on it.
Any thoughts on how to fix, does it need lubricant? Thugs said it was moist damaged but looks brand new otherwise (he said it was as well)
Sounds more like it is in sore need of cleaning, and badly! What I would suggest is to go to a local hardware store, or even the big box stores, and get a spray can of CRC. Its a spray that can be sprayed into the motor. I would also disassemble the loco before doing this. This should be a snap assembly, and shouldn't be difficult at all.
I would disassemble the trucks by unsnapping the bottom plate and exposing the gears. I would wash them in a real good degreaser like regular zippo lighter fluid. It won't take very much to do this. When I degrease a set of gears I put some lighter fluid into a small container, and use a paint brush to wash out the grease.
After this is done, as you re-assemble the gears, apply a small amount of Labelle white grease, (can't remember the number), but get the plastic compatible one. I would lube the axle slots with DexronIII ATF.
The loco should run a lot better. While this may have what is called a "pancake" motor, these motors from that era, were pretty good motors. I had until recently, a Bachmann 0-6-0, that had one. I bought it in 1982. I also still have a Lionel HO SRR train set with a GP-7. I bought it in 1976, and after being my Xmas Tree Train for almost 20 years, it still runs very, very well!
As to the headlight, If you have any soldering skills. I would go to a Hobby Shop that sells trains, and get a some "Grain of Wheat" light bulbs, of 14-16 volt range and solder these to the place where the old bulb was. You may want to even solder in two bulbs, one for each end, if the loco is a GP.
