In Simutrans world perhaps. Over where I am now, buses mostly operate outside the city. A decent train service restarted a little over a year ago, but apart from that, it's buses or nothing. And there is still a bus service running along the rail line (mostly, same endpoints).
I assume that in very sparsely populated countries like Norway with a very sparse railway network you have a lot of intercity buses. Over here, in the very dense population, buses are mostly for intracity transport or for rural areas, where they connect the small villages to the somewhat larger villages (somewhat larger meaning about 10,000 people), from where trains bring passengers further. Often the trains and buses are operated by the same company.
0 is actually the most realistic for passengers. If your train goes in a huge loop so you end up 1 km away from where you start in a different stop then you will pay both for going to the furthest point away and back to get there. The only thing not realistic about 0 is that you get paid at every stop (and not when they board or depart) but that is trivial and purely due to game mechanics.
I agree with that. And of course nobody would use that train, but that's a different matter.
If anything there needs to be a new mode which pays for physical distance traveled. This would remove the need for re-direction stations for destructive shipping movements in mode 0.
When I travel by bus, I pay for the physical distance traveled, to 65 m (or €0.01) accuracy.
Mode 1 is actually semi-realistic. In areas with different transport providers, people pay for each trip with each provider/company. E.g. in the Netherlands, the distance the bus goes is measured in km and then paid for at the end of the ride (by checking in and out each time you bord and exit). Trains are a bit different, where one checks in at a station and out again at the destination station and the cost of the travel is shown to you by the check-in machine (No increased costs or paying at changeovers). If you switch companies there, you do check out of one and then into the other on the platform.
To put it a bit more precisely, passengers pay here for the shortest possible journey consistent with the places and operators where they checked in and out using their chip card. Operators can't cheat by using a very slow or inconvenient direct service to scare people into using a detour and let them pay more; if the short service exist people pay for that, even if they take the faster detour.
On buses, one checks in and out when entering or alighting, so one pays for the actual distance traveled. On trains, where one checks in and out when entering or leaving the station and when changing operator, there may be multiple possible routes. For example, when traveling from Roermond to Deventer, one can change trains either in (A) Nijmegen (2:35 hours, 149 km), (B) 's-Hertogenbosch (2:31 hours, 191 km) or (C) Utrecht (2:29 hours, 211 km). On route A, the cheapest route, one uses two different operators. On routes B and C one uses only one operator, the same on both routes, so there is no distinction and in both cases one pays for 191 km. But in every case, it's the distance measured along the track (with the exception that when construction of a line was particularly expensive, they use shorter kilometres).
To complicate matters, ticket price is non-linear. When passengers travel far, they pay less and less per km, and after 250 km each additional kilometre is even free (maximum distance one can travel here is 430km – yes, small country). Then there are complications when changing from one operator to another, making things so complicated that the operators themselves don't put the full mathematical details on their websites, referring instead to the on-line travel planner.