Wow Alan, big subject and I'm not sure where to start with it.
A major contributing factor is your budget as non of these things are cheap so I would expect you are going to have to pay in the region of 1-200 pounds for something suitable. I would also suggest that you go for something that operates as it will appeal to your fathers sense of engineering far more than a static model.
Firstly the more well known manufacturers:
Stuart are the most established and do a very wide range of models as bare castings, machined kits or complete tested units:
http://www.stuartmodels.co.uk/
The trouble is here they are expensive but the models are traditional and look like a real engine.
Another relative newcomer is Cotswold Heritage at:
http://www.modelsteamenginesuk.com/aboutus.asp
Once again beautiful models but very expensive. They do a very nice range of models complete on a base with boilers which make up into a complete plant.
John Hemmens is also a favourite at:
http://www.steamengines.co.uk/
John is a one man band so I would be very surprised if he could supply anything for Christmas but he is very flexible and freindly, happy to have a chat but a bit frustrating with delivery times. Have a look at my Ben Ain build thread and gallery to see what his engines look like.
Here is also a usefull list of model boat suppliers which include many live steam manufacturers for you to spend an hour or so wading through:
http://www.modelismonaval.com/directory/steam.htm
What you will need to distinguish here is whether they make models of real engine configurations, such as Stuart, or whether they make models designed purely for a purpose such as propelling a boat. Cheddar were such a manufacturer so thier models would not be considered as attractive as a stand alone model but are easier to look after and maintain.
The final alternative of course is Ebay where you will find everything from museum condition models to crap. I have bought both in the past, sometimes in the knowledge of what I was buying and sometimes not quite so much.
It is a mine field but there are some very worthwhile models to be had there. I have purchased a lot of models from Ebay, some of which I was very pleased with, but you have to do your homework.
Such items as this:
http://cgi.ebay.co.uk/french-f-s-radiguet-antique-steam-engine_W0QQitemZ320053179131QQihZ011QQcategoryZ14737QQrdZ1QQcmdZViewItem
are lovely stand alone, self contained, models that would keep an engineer amused for hours.
This is a very nice boat complete plant ready to go back into a hull:
http://cgi.ebay.co.uk/Radio-Controlled-Live-Steam-Boat-Engine-and-Boiler_W0QQitemZ300054239744QQihZ020QQcategoryZ14737QQrdZ1QQcmdZViewItem
a nice Stuart engine without a boiler (and a bit expensive):
http://cgi.ebay.co.uk/Stuart-Turner-No-8-live-steam-mill-engine-dampfmaschine_W0QQitemZ150062609423QQihZ005QQcategoryZ14737QQrdZ1QQcmdZViewItem
This is a nice little conversation peice but, once again, no boiler:
http://cgi.ebay.co.uk/Fine-Vintage-Steam-Engine-With-Edward-VII-Florin-Inset_W0QQitemZ130051168086QQihZ003QQcategoryZ14737QQrdZ1QQcmdZViewItem
This is a nice little antique complete plant which has the added advantage of a bit of age to give it some interest. I would check with the seller that it has been recently tested and ask if it runs smoothly. If not you are taking a chance.
Next here is a nice completed Stuart at a reasonable price (currently!) but again no boiler:
http://cgi.ebay.co.uk/stuart-steam-engine_W0QQitemZ230056157300QQihZ013QQcategoryZ14737QQrdZ1QQcmdZViewItem
Now if you want to get him out of the house completely on a Sunday morning how about a complete boat:
http://cgi.ebay.co.uk/Live-steam-river-launch_W0QQitemZ200052075599QQihZ010QQcategoryZ14737QQrdZ1QQcmdZViewItem
That is a very nice model and would be a superb present for an ex-engineer. It is a lot of money though if you are not certain that he would take to it. I think it is great!
That is just a few things currently on offer.
I would personally stay away from Mamod and Wilesco as they really fall more into the 'toy' category. They are great for introducing kids to the hobby but I think a retired engineer would soon get bored with one and they don't have any aesthetic value.
What I would suggest is that you have a look through those links and generate a bit more of a direction you think is appropriate and then set a budget.
If you let me know what your thoughts are then I will see if we can narrow the choice down a bit.
If he doesn't have any machine tools have you thought about a modelling lathe or milling machine? You could set him up to be able to do a bit of his own machining then which would be something he could enjoy for a long time to come. It depends a bit on available space but Unimat lathes are very small desk top units and you can go up from there.