William, your point about track condition and use of K-37's is well taken. So a decision by the Commission and CTSMC to proceed to rebuild a K-37 would likely be a function of money and customer demand, not track condition.
General C&TS experience has been that ridership levels up to 55,000 or so can be covered with a motive power fleet of four locos. With completion of 463 the C&TS will have five steam locos operational, although running gear rebuild requirements are likely to mean that only four, or as few as three would be available at any given time (right now the money for such work just isn't there because of the Lobato Trestle situation).
If ridership really builds in the next several years, prudent planning would dictate that some portion of the additional revenues would go toward maintaining five locos to cover the possibility that ridership could grow beyond 55,000, but a sixth loco, a K-37 (497 or a hybrid 492/497), would not make sense until ridership were approaching 75,000 riders or more.
Since ridership for the 2009 season was only about 40,000, getting to 75,000 riders or so is a long way off (if ever). But should fortune smile upon the C&TS, the fact remains that the cost of rebuilding a K-37 to satisfy FRA requirements is likely to run at least $800,000 (or more). Much as I'd like to see a K-37 back in action, it's not likely to happen in my lifetime. However, there is no question that, should money magically appear, a K-37 could be rebuilt and returned to service.