Hi It's been almost 20 years since I was there in India. My wife and I are visiting India in Feb 2015. We are much excited about this trip because we had our honeymoon time in India way back in 1995. We would like to take a train from New Delhi to Agra and then from Agra to Varanasi, twenty years ago trains were not very comfortable, so has it changed much or its still the same? First class is worth the cost or not and if now then what is the condition of 2Tier AC? Also, can you recommend any good hotel or guest house near Taj Mahal. Last time we stayed in Taj Ganj and we could see Taj Mahal from the rooftop.
India has changed a lot in past couple of years and 20 years is a very long time, when you arrive you will instantly see the difference. First class is worth the cost and if you can spend the money and want comfort then by all means you should go for first class. What is your hotel budget?
There is a major difference in India as compared to what it was like 20 years ago, not just with the look, but with the services and facilities available. You would find more international brands in India now not just with clothes but with food as well. The change is all for the best and I am sure you would be impressed. Regarding your question train journeys have become better and obvious first class is worth it, condition of 2 Tier AC is ok, I wouldn't call it all bad.
Now with the opening of the Taj Expressway, you can travel from Delhi (NOIDA) to Agra by road in 2 hours. Varanasi and Delhi are also connected by flight and costwise, it would be comparable with 1st AC from Varanasi to Delhi. Agra to Varanasi by train would take about 15 hours. So I would suggest that you travel Delhi to Agra by car and return back to Delhi, then go to Varanasi from Delhi by flight.