Possibly, the medicine thing has been confused with Mummia, a resin used in the mummification of bodies. It is still used as a folk medicine in parts of Africa. Many in the middle ages thought that mummia was actual mummies, ground up and mixed with resin.
There are many folk stories about the magical properties of dead bodies or related artifacts. In Medieval England, it was believed that if you took the rope that had hanged a man, and put it around your own neck, it would cure epilepsy.
I think you'd need an awful lot of mummies to keep a steam train going!
It takes about 1 hour to cremate a body in a modern gas powered crematorium: that's a "fresh" corpse with fat on it. Mummies have very little "fuel" apart from their bandages and perhaps whatever oils etc were used for embalming. There's virtually nothing to burn.