Going through this thread again, it is obvious to me now, that many of the questions I posted here, do not require a physics engine at all. The water and cloth (curtains, drapes, etc) can all be handled in a variety of ways, including bones, mesh-morphing and good old fashioned vertex-by-vertex mathematics. For example to create water that rises and falls as bodies break the water surface and move about within it: A simple spring maths system that returns all vertexs within the water mesh to a relative 0 z axis, bouncing between - & + z values, that adds to the z axis of the vertexs relative to the model that is influencing them, and the vertexs around them. (obviously the mathematics is a little more complicated than this). Combined with reflective shaders, bump mapping, and possibly a sqewed view mapped onto the water model, to create the natural light bending water illusion.

In short, many of my questions can be resolved without a physics engine, as Marco points out. Some of my questions are still valid though so I will push on.

Rag-Doll does not need to be used for normal movement/game play, it could only be used when a model is dead, in which case any variations of model position, would not effect the game play, and would not be exploitable. However we would like explosions and other forces like weapons fire, to be able to move phsyics objects, and for players to be effected in the same way. So models caught in an explosion, that survive, should be able to get back up, after the physics finished with the player, i.e player comes to a complete stop. So control would be past back to the player after this point.

So technically could we swap from mdl part/bones animation to rag-doll and then back again? And are there any issues with this, and which physics engine is best suited? Considering that we intend to build a 64 player multiplay option, so possibly 8-12 models getting effected by explosions, and other objects (hit by a car for example, I say this as we expect to have drivable-vehicles in our game)

Thanks again everyone