I would probably avoid such a "gimmick" in N scale for two reasons:
1. The smoke effect would really not scale well. A very thin wisp at best... probably wouldn't look good coming out of a large steam engine climbing a grade!
2. More importantly, the smoke fluid tends to leave an oily residue which can affect traction, electrical conductivity, and the surrounding structures and scenery.
I have a smoking engine in Lionel that does the Christmas tree loop every year; we don't use the smoke much. When you first smell it, it's a wonderful trip down memory lane. But after a little while it starts to make the living room stink! The fact that Lionel is just so big (and heavy) probably overcomes the issue of oil resiude on the rails, though I know it's there. I can see it when I wipe the railhead.