The "H&W Spaghetti Bowl" has evolved quite a bit. The new track plan keeps much of the spirit of the old, but is significantly reworked.
The operations plan is to switch the sidings in the "city" in the upper-left quadrant, running trains up to and down from the marshaling yard (which will also have some engine facilities). Trains can also come from or go to off-layout points via staging. (The staging is 7" below the mainline to hopefully allow for some Hand-of-God switching.)
Best,
Thomas
Thomas, I thought I would offer some thoughts. I'll leave the space configuration and room redesign to you and others, but just working with the plan you posted here...
It sounds like you've put some thought into how the trains will operate, but with the important goal of satisfying the kids as well.
I think I would try to simplify the plan by not having
both separate staging tracks
and a classification/marshaling yard.
I would use a simple out and back concept for your plan. Have the yard act as an interchange/staging/train assembly area with the goal being to assemble a train at the staging/interchange point, deliver/pick up cars around the layout, pass through a hidden reversing loop, then pick up/ deliver other cars on the way back to the yard/interchange area. The reverse loop acts as the train making "the turn" like on a real railroad. You have those elements already in place in the layout you've posted. You could also connect a portion of the track to make a continuous running loop somewhere.
If you want to use 2 or 3 levels to run the trains and create distance that's up to you, but I really think combining, say, a two track staging yard with a three track classification/assembly yard would provide you and your kids the visual appeal of a 5 track yard while combining the operational elements of staging and assembly into one area instead of two areas, like you have now.
Staging would be fiddled on the top layer, rather than the lower layer, which would also solve the finger-knocking access issue.