My response may be different than the other commenters. This issue isn't about the train set. It is about a family member getting a gift that you specifically told her was impractical, and then bringing your son into it by talking to her about what your and your husbands responsibilities should be.
I find it fascinating - the issues that come up with parents-as-grandparents. Many of my friends have dealt with a whole range of issues. I think we have to give the grandparents some slack in a lot of areas, but this really crosses the line. You do not want her to be bringing your son into disagreements you may have in the future, especially about money and how it relates to the quality of your parenting. Perhaps it is time for you and your husband to have a formal sit-down conversation with her about your financial situation, how you want to teach your son about money, and therefore, why your advice about presents was important.
I realize this is easier to suggest on a blog than to actually do, but some of my peers have done this with their parents over serious issues and there has been progress. Also, your husband should be the one speaking, MILs and FILs have a tendency to give less credibility to the DIL/SIL.
Honestly, if she doesn't get it, I would say put the gift she gave you on Ebay. Maybe that is harsh, but your story really upset me and I feel for you.