This post has just been hanging without a response (but has 200 hits). I think the reason may be that nobody wants to be the bearer of bad news?
A figure 8 design in HO is a real challenge. I tried this with my first 4x8 layout many years ago and was not at all successful. It looked pretty good but operationally it was a mess. Grades were too steep and on tight curves, vertical easements were too short, turnouts on grades were problematic, tracks at different levels were too close together, and throw in some S-curves... it was all but un-usable. A few months ago there was a post by a member here with a similar design already built, with exactly the same problems. After a lot of discussion how to make it work he decided to start over.
In theory going with a 5x10 should help a bit, but since much of the extra width on the proposed design is taken up by the yard the gains are minimimal. And the extra width makes it much harder to reach into the center to work on the critical track there.
Not saying its impossible, but more than I am willing to try (been there, done that.) If you really want an over/under crossing in HO I suggest you think about an around the wall style layout instead of an island. That gives better opportunity to lay track long enough for reasonable grades. Here are some general guidelines based on my experience- both back then and now.
- Keep grades well below 3% especially on the mainline (2% is a good max target)
- Keep grades away from tight curves (anything less than 26" or so will make them act significantly steeper)
- Allow for vertical easements in the design (transitions from grades to level track are needed to keep cars coupled)
- Provide enough room between tracks at different elevations to enable building a hill, rock face, or some sort of wall between them
- Avoid putting turnouts on steep grades
All of the above is especially recommended if planning to go with modern locos and rolling stock, since they tend to be longer than the old stuff and that just compounds the problems.
Hope this helps. May not be what you want to hear, but better than jumping in blindly like I did back then.