Most physics engines I have seen will intentionally start dropping the quality of their calculations to ensure the CPU time it needs dosen't subtract from everything else. UT2K3 actually has a low/medium/high setting that affects the non necessary ragdoll deaths.

Aparently id is going to be touting their physics engine in Doom 3. Based on their Quakecon presentation, this is part of the delay, as it was rewritten from scratch this year. They said something about it handling 100 boxes stacked on top of each other. They unfortunatly didn't show anything though to indicate how processor intensive that was.