I haven't tried one, either, but I suspect that the decoder will have to go in the tender. I don't know if the lokie even has a headlight, if not, you only have to pass the motor leads and track pick ups. If the tender has pick up and contacts to the front like the 2-8-0, you can solder the track leads inside the tender, so only two wires going between engne and tender. I like using TCS M-1 or Z-2 for this type of install, since their wires are thinner and more flexible than Digitrax.
With all the surgery these things have been undergoing, I'm really tempted to pick one up to tinker with... especially at under $30!
Lee