[Finster]

Of course size is a big issue especially if you want things remain scale looking. As far as knowing where the blade is located, I believe there are many different ways to accomplish that. Here are a few:

Basically it would require some feedback just like a servo. So if you are using hydraulics to raise, lower the blade, perhaps mounting a linear resistor mounted with the cylinder rod that changes resistance with the cylinder extending and retracting. Feed this info back to an Arduino or some sort of microprocessor or circuit, maybe a hacked up servo to figure out it's location.

Another way would possibly be to use an ultrasonic distance measuring sensor (maybe even a laser). I'm not sure how accurate they or how well they would work at a close distance. Perhaps point one down at the ground mounted on the back of the blade. Also not sure how well this would do if it got dirty.

Another technique would be to use a stepper motor and a known pitch leadscrew to move the blade and count steps to calculate the location. Of course this could go horribly wrong if the stepper missed steps for various reasons.

Basically you are leaving the scale model realm and getting into robotics at this point. If you are really interested in this sort of thing, I'd suggest you start reading up on those type of sites. Neat discussion though...