@bupaje: Yes that could be done, but it would be tough and you will probably see some popping from changing between a hinged ragdoll (separate models for arms, legs, etc) and a boned model.
I still think that Unreal Tournament 2003 has done it very well: they use animated or boned models and when critically hit convert it to a ragdoll and after a while disable physics on that ragdoll until respawn.

Realtime fluid dynamics in 2D is possible but wasteful since you can get good-looking results just by having a mass-spring grid and pretty textures. Coming back to UT2003, it seems that whenever something hits a water surface the closest vertex gets displaced and then the grid wiggles around until it reaches equilibrium.
Water grids and cloth and jelly could all be done in C-Script. Here's an excellent intro:
http://www.intel.com/cd/ids/developer/asmo-na/eng/segments/games/resources/physics/20413.htm