THe way 3DGS does it ( and I can't speak for newton or havok, though I suspect you can set up the same) is that Physics "lives" on the server. The client receives current position visual info and the client can send physics request to the server, but thats it. There is no physics on the Client. This keeps everything tied into the server and all clients in line.

I currently have a physics enabled client/server test levels in User Contribution if interested.