there's physical simulation for things like falling down, being shot, stuff like that, take
http://www.naturalmotion.com/endorphin.htm endorphin for example. but i doubt it's worth it for the average game designer's needs.
all animation is vertex animation in 3d game desing, since we work with vertices and triangles and all approaches like bones, joints etc have just been invented to make that more handy and streamlined. 1 abstraction level above bone animation, there's NLA, short for non-linear animation, which is basicly the process of blending different animations together, like walkin, shooting, and looking up at the same time. you can do that in the well-known big 3d suites.
truespace offers some kind of muscular simulation, but relies on bones and mostly determines how the surrounding mesh is deformed.
so no, there is no real alternative to bones. what's wrong with bones, it's actually a really nice concept and once you've set them up and pulled all the ik chains, it's fun.
