Jebus H. Krist your right!!!
From the FAQ section (THE FAQ! geesh)...
Quote:
By default PH_FPS_MAX_LOCK is set to 70 fps. If FPS_LOCK is enabled and FPS_MAX is also set to 70 fps the simulation time will be synchronized. Setting FPS_MAX to, say, 35 will make the objects move at half their speed instead.
Which means I'm going right now and locking my framerate at 70!!! This explains why my objects seemed to fall so slow!
However, Point 3 is still valid; The PE has a static stepsize. Assuming the PE is doing some sort of ODE integration, every Physics simulation I have ever programmed takes an ADAPTIVE stepsize in order to better integrate the physics behaiviour and reduce error. For eg, (straight from "Numerical REcipies in C") 4th order static stepsize Runge-kutta has a error O(h^5). A naive adaptive routine, say Runge-Kutta-Felberg method have errors of O(h^6) and this error can be imporved upon further by more intelligent adaptive procedures (Richardson Extrapolation for eg). In my experience, a locked-in stepsize is asking for trouble no matter what stepsize you choose 
