In my project, everything is physical, players included. Here, the player arrows control the magnitude and direction of a skill named net_force_x, net_force_y, and net_force_z. These skills are then processed by an while/wait update routine that applied a phent_addlocalforce in accordance to the player intentions. I use a multiple combination of simultanous forces for stablity instead of just one force on the players center. Furhtermore, I had to make sure that my forces where PULLING (ie applied in front of the entity) instead of PUSHING (applied from behind) in order to increase biped stability. At low speeds and accelerations (around 500 quants/s and 50 quants/s/s), this configuration and the player movement is stable. Any higher and he becomes unstable.

It's pretty nice to have player collision controlled by the PE. It looks damn tight and when you slam into a bunch of static looking barrels, they, being physical too, respond in kind.

IMHO therefore, while the current PE is not optimal for bipeds, it can be done and it looks damn slick!

I think your problems may also have to do with registering and unregestering physical entities. I too have had (unrelated?) problems with the physics engine focusing on the registering of physics ents.