We've had the Open Dynamics Engine integrated into the engine for a while now, but we were just using it for fast sphere-mesh collision checks for the camera and Rabbot. Anyway, I decided it would be fun to use it to add some dynamic objects that could fall and interact with the levels and terrain. In the new alpha, you can press 'b' to create a block, and use right-click to drag it around. Here is a video of it; click here to watch in HD! In the background we have a new song by Mikko Tarmia, with live flute by Anton Riehl.
Soon we will work on a physics editor that will allow us (and modders) to attach any model to a set of fast collision primitives with various constraints. This will allow us to simulate much more complicated dynamic objects, like weapons, characters and scenery objects.