How do I beat Nightmare Train?

You just need to push the enemies to out of the train ..

Heres what I did.
I had Devil Jin and Alisa. and this is what I had equipped on them

Devil Jin: Health +350, Attack +55, Fire +69, Lightning +40, and Ice +30

Alisa: Health +150, Attack +50, Lightning +50, Fire +40, Ice +25

I pretty much spammed the Eye lasers (PS3 Triangle + Square, 360 Y + X) and moved next to Alisa to protect her (The minute she gets ko'd, you're done for) and slowly worked my way to the side of the train with the gatling gun (still spamming the Eye Lasers) and when Devil Jin Showed up, I grabbed the gatling gun, and shot him off the side (move where he'll bounce over the railing when the gun juggles him in the air)

and BAM, Instant kill, and level complete

Hope this helps.

Play as Kazuya. Use his Triple Spin Kick, a lot. It does excellent damage, clears a wide swath of enemies and the enemies rarely block. When DJ appears, blast him off with the minigun, for great justice.

Used Lili with Health +323, Attack +79, Fire +90, Thunder +20, Regen +8
Alisa with Health +321, Fire +66, Thunder +26, Regen+6, Bound +2

Spammed her 3, 1 attack over and over. hits downed opponents too.
Kept my target the same as Alisa's which helps you escape from any enemy targeting you and helps knock out the crowd that Alisa attracts. Do not attack ones that are targeting you, they will block or counter. Either wait for Alisa to get its attention or go for another one not targeting you. I noticed I was able to kill some of them with one kick when the fire kicked in.