You're right - I found that the source code of pXent_movelocal was confused and could never have worked.

On that occasion we've implemented new functions, pXent_move and pXent_rotate that work like it's non physics counterparts. These functions replace all old physics move functions and work for all registered entities. We've also modified your example for testing all 4 movement methods, and added it to the documentation.

http://manual.3dgamestudio.net/pXent_move.htm