Sure

I use sand and other natural materials all over the place for ballast.

The industry tracks visible here are ballasted with sand, as are most industry tracks on my layout.  My mainline ballast is from  Scenic Express, which is a sifted rock/sand product that is dyed, so essentially all of my ballast is some kind of sand.

I'm sure you'll get warnings to check for magnetic/conductive particles in whatever material you use, but I've never had a problem with them.  I've heard of an extreme case or two where a massive concentration of conductive particles in some sand or dirt led to a short, but that's very rare.

Oh I know

What I'm curious about if the stone dust of leveling sand would have the correct texture (too coarse/ too fine).

The thing is Scenic Express or one of the others for a little bag of "scale" size rock ballast, it will cost quite a bit with getting it to up Canada but this stuff is $6 for 20 Kg

Texture

Textures and colors of these products vary, so all I can suggest is trying some out to see.  Whatever brand you can get locally is possibly not what's sold elsewhere.

Check out aquarium sand

and comes in several colors

and comes in several colors black to tan grays also. May need to special order from your local pet house. Also quite cheep. $1 per pound

Sand

"be usable as HO size ballast?"

the best way to find out is ballast a short piece of track and take a photo of it outside under natural light with a freight car sitting on it and some distant tress or other generic scenery behind it. If it looks satisfactory in the test photo it should look fine in layout photos. Here's one with sand and dirt ballast....DaveB 

Texture, Color, Size

Plus 1 for the above post. Just give it a try and see how you like it. Remember three factors when shopping. 

Texture: ground, chipped, rounded etc

Color: sand, grey, blue-grey, pink etc

Size: Put an HO scale figure and/or some ties next to some individual pieces of your chosen medium how does it look?

I once bought some Scenic Express "N-scale" following the adage that you should use N-scale for HO and HO for O scale. Well that adage applied to older ballast that was less scale. The ballast I bought is now being used as gravel roads on some of our HO free-mo modules and I bought the next size up for ballast.

Just a picture to get people thinking; here his some ballast that resembles river rock:

http://naweedfardeen.af/10Hairatan%20Port.html

Matt

You can screen and color sand

Don't forget - it's easy enough to screen leveling sand into different grades.  If you poke around eBay, you can even find mining screens - search Gold Pan Sifting or similar, and you'll find stuff like this:

http://www.ebay.com/itm/5pc-Classifier-Sifting-Pan-Set-Screen-Pan-Gold-Gem-Panning-Mining-Prospecting-/190866197417?pt=LH_DefaultDomain_0&hash=item2c70830ba9

These fit nicely over 5 gal buckets.

Then, if you need to change the color, consider grout colorant.  I can't find the specific product online just now, but at the home improvement store I found a 2-part grout product, where you buy a bag of grout, then a bag of colorant to mix with it.  If you just buy the colorant, that'll nicely color sand, plaster bits, or any other stone-like stuff we're using.

All kinds of sand

During my 60 years of modeling I've used sand, all kinds of sand for just about everything. Everywhere I travel, if I see some sand I attempt to pick up a bucket full.(I carry a bucket or bag in the car for jut this purpose) The stuff comes in all colors and sizes and textures depending on where you find it. Vacation trips were especially fruitful for several different colors and textures, also a short trip to the mountains will yield a good variety. For ballast, I dump it onto the track, spread it out with a piece of card stock and a brush, then pre-wet it with some water with a few drops of liquid soap or wetting agent and spray it on the ballast. Dribbling white glue (50% water to glue)  until saturated. Let it dry and it becomes almost immovable.

Sanded Grout

Drying

Put some in a smaller container and leave it on an HVAC register for a day or otherwise near a source of warmth.  Maybe stir it around a few times.  Drying in the oven can leave unwanted residual odors, so I'd avoid that.

no odors present

my sand is just fine crushed rock, only damp. I'm giving a small batch a run in the oven now so I'll update you with how it goes

Bake on cookie sheet

I would bake it in the oven at about 150-200 degree.  Should dry right out.

Art