I actually did run the demo, open up gta4 and get near slowly to a pavement and same thing happens.

Also check what happens on the Visual Debugger. I understand your point but you are looking for solution on the wrong place, it does not really look like an implementation bug, and as a lot people said that's what most expect from the physx. you can always smooth between the values you get from physx engine as superku stated. (actually you SHOULD do it for physx objects with critical impact on gameplay, because sudden FPS drops/jumps can result in physx doing crazy things.)