I like railroads the way they are, even though it's not intuitively realistic. Railroads are simple and elegant. The rules for them are straightforward and comprehensible. Taken in the context of the existing complexity of the game, I think the Sid & the Gang's rules for them are very satisfying.
Each turn in the game takes at least a year. Given a year, units in the real world could move a lot more than the 1 to 9 spaces allowed in the game by non-rail movement.
Railroad's enhancement of the economy simulates the production and agricultural boom brought about by industrialization. In this way, railroads serve a double purpose.
As for the ability to bring a massive defensive smackdown on an invading rival, anything that reigns in expansionist dreams of victory by conquest sounds good to me. As time goes by, borders have tended to become more set in stone worldwide. There's not a lot of nationalist expansion in the world today, and railroads help to simulate that.
The only drawback I see is that the AI is not as good as a human at using railroads. But this is at least partly compensated for by setting them to a high difficulty setting.