The garage LEGO is currently selling is only $99 (are you in Canada? I don't see your location). It seems like an averagely priced set for what you get.
I'm not sure what you're looking for as far as city sets go, but some of the bigger ones (like the Fire Brigade and Green Grocer... Fire Brigade is not listed under city, but it's designed to connect to the Green Grocer) are great builds for an advanced fan of LEGO. But if you're trying to get a model city going, one that's good for playing, then the garage, as well as the City Corner would probably be good choices.
As far as trains go, don't go seeking the past unless you already have a significant investment in older sets. Every ten years or so LEGO changes the trains to something new. A couple of years ago they went from 9V (electric rails, like standard model trains) to RC (remote control). I'm not happy about it (most of the regulars around here are well aware of my constant whining), but if I were to start off now, I would not invest in old sets... they are expensive; one straight 9V section of track is $4 - $5 (yes, ONE piece), so if you wanted any kind of decent layout, it would be incredibly expensive. To give you an idea of scale, the Emerald Night,
without the tender or car - just the engine, is slightly LARGER than two pieces of straight track. You'd need about $25 to $30 just for enough 9V track to put on your shelf to display it (although, you wouldn't logically do that).
I know they are sold out of the newer RC train sets, but you could always get the Emerald Night and build up around it. You could also get these recent sets (The Cargo Train is a much better one, IMO) at Bricklink for a lot less than any of the 9V or older sets. Plus, LEGO
will have new RC/Power Functions trains this summer.
EDIT: This is the one (Cargo Train Deluxe) I'd recommend:
http://www.bricklink.com/catalogItem.asp?S=7898-1. You may even be able to find it at list prices in a store somewhere.