N scale is aproximately .6 the size of HO, so I don't think it's possible to get the same layout in a 1/4 of the space of HO, but slightly over half is no problem in most cases. Track spacing would have to be adjusted and "people room" are other factors, but for the most part, a bit more then half is a good place to start.
Some of the disadvantages have already been covered. Sound is still not the greatest, but it improves all the time. Also, parts can be small and delicate. An Optivisor is your friend! Other issues include the fact that trackwork has to be laid with more percision to get reliable operation due to finer tolerences (indeed, many things in N scale require this). Also, there is no one best track brand that stands head and shoulders above the others. All brands seem to be compromises, but that doesn't mean they're all bad either. Furthermore, depending on what you're modeling, certain companies loco's and rolling stock are better then others. For example, someone mentioned that Atlas loco's are very good, and they are some of the best around, if you model diesels. If you model steam, you're going to be disappointed. They only offer 2 models, an 1870's 2-6-0 and a two truck Shay. Both are great models, but thats not a lot of variation. Kato makes one of the best steamers out there (with the traction tire added), but they only offer 1 North American steamer, a Mikado. Bachmann Spectrum (the standard line is being redone and it's better, but the Spectrums are better) line is good stuff for the most part, and they offer a few loco types. With them, they offer the best warrenty out there. The problem is, you may need it as their quality control leaves a little to be desired sometimes. Another problem you'll notice is that HO scale enjoys wide support for virtually anything you could ever want as an off the shelf product. I know, not everything is covered, but most is. N scale isn't so much that way. If it's not available, and that happens more in N then HO, you'll be kitbashing or scratchbuilding it. (And they say this isn't a modelers scale!) It's true also that grades have more effect on smaller, lighter models, like N scale, but then, I see that as part of the layout design challenge. Lastly, if you're into tiny details, N scale will be a letdown as the detail threshold is lower. A doorknob with a keyhole in it disappears into a small bump in the part in N scale.
And that brings me to the benefits of N scale.
Because the detail threshold is lower, you can concentrate more on the overall scene. Rolling countryside for your trains to run through can actually look like an expansive rolling countryside. Mountains can actually dwarf the trains that pass through them. A city can be truely massive. And if an iron ore ship is 6 feet long in N scale (and I've seen some impressive models), remind me again of the size room needed to house the HO counterpart. Also, an 18"r curve in N scale is rather generous while still easily fitting the confines of the average bedroom. In HO scale that same curve is only for logging and industrial trackage. A 4-8-4 Northern or an SD70M doesn't stand a chance of making it around that, let alone looking decent doing it. Lastly, in N scale, if you want to go with a multi-level layout, the levels can be spaced a bit closer together without crowding the scene below.
I'm sure there's many more issues, but those are the main ones that jump out at me.