"Double-O" or OO started in the UK early in the 20th century. When HO started in Germany (Marklin I believe), British manufacturers found the smallest motors available wouldn't fit in 3.5mm to the foot UK models, so they increased the linear scale to 4mm = 1 foot, but continued to use HO gauge track.
TM's two-part "Century of Lionel" 100th anniversary video/DVD has a nice section showing Lionel OO line trains in operation. It was only made I believe in 1937-42, and the items were generally copies of their 1:48 O scale items - NYC Hudson, scale freight cars, etc. - and were available for both two and three rail. (Believe it or not, back then there were some HO and OO layouts that used outside third rail, as many O scale modelers used!)
The video noted that if Lionel had concentrated on OO scale after WW2, it's possible that OO might have become the more popular than HO scale in the US, as it is in Britain.
http://www.toytrainrevue.com/oolayout.htm
p.s. HO means "Half-O" scale, but since it started in Europe, it used half of European O scale, 1:43.55 or 7mm = 1 foot. In the US we use 1:48 scale, or 1/4" = 1 foot. Neither is correct, but that's another story....
The guys over on the Classic Toy Trains part of this Forum would probably have more thoughts and reactions for you. I have seen the Lionel OO Hudson working at a display at Milwaukee's Trainfest and it is a smooth running item. However the version I saw was two rail, not three. And yes the track was true OO, 1:76 ratio.
As with all other Lionel, I understand the values go up sharply if you have original boxes.
Lionel came out with their OO line in 1938 if I read the sources correctly. And just as Lionel never really did seem to grasp the nature of HO scale in their three (or was it four?) attempts to have a serious presence in that market, while it is true that early HO and OO had third rail, by 1938 there was already a good selection of two-rail OO (and some HO) on the market but here they were, pushing basically a smaller version of their O (and before that, Standard gauage) toy trains with the center third rail. I do not know if they switched entirely to two rail at some point, or tried to keep both a two rail and three rail selection available.
Having said that, the Hudson was very well detailed for its era just as the famous Lionel "scale" O gauge Hudson remains impressive in its fidelity even today, assuming you can find one that does not suffer from zinc rot.
An interesting find to be sure.
Dave Nelson
I was at ye olde hobby shop yesterday, and there was a guy there with a box-of-old-trains. I lean over, check out the steam engine and remark: "American Flyer" (because it was obviously bigger than the HO that was on the counter, yet smaller than O, Lionel or scale).
Nope. He says: "Lionel OO".
Well, I've heard of OO, especially the English stuff that's still made. And I kind of heard that Lionel might have done some OO way way way back.
Here it was.
One of the shop guys opined that it was done in the English style: 4mm scale on 3.5mm track. The guy had some actual real track switches, too. I held a switch up to the HO test track. Nope. REAL 4mm track.
AND.
It was 3-rail. It was just like miniaturized Lionel track. The switches too. They were internally solenoid operated, and seemed to have lit switch indicators. The underneath of the switch had a clear plastic cover, so you could look at the wiring guts, and all. VERY cool.
The guy showed me the tender, and wondered about the pickup roller underneath. My guess was that it was for a whistle, just like the big Lionel.
The engine appeared to be the classic NYC Hudson. The guts were all taken apart, for some reason.
I surely wish I had had one of those smartfone thingys everyone is talking about so that I could have taken pictures. And also the presence of mind to do so. My apologies on that. But I was surely taken by surprise.
What a neat find.
Ed