Currently it's not a big point for us because we don't use the physics engine.
But for our next projects we will use many physic entities in a network.
Why we would need local physic entites:
It would be the wrong way to have _all_ physic entites only on the server side, because the server must send every object's positon every frame to create a very 'smooth' movement/and so on. That is too much traffic.
The right way is to create teh entites local and move them in the same way as the server does and send only 'n' frames a checksum from the server to the clients(for correction). We use this thing in our current network game and the result is a very smooth gameplay like in unreal or quake. We use this thing for _every_ object(projectils, players, enviroment and so on) and the result is very good.
For more information(we used these tings):
http://www.bookofhook.com/Article/GameDevelopment/TheQuake3NetworkingModel.html http://unreal.epicgames.com/Network.htmhttp://www.amazon.com/gp/reader/0201325578/ref=sib_dp_pt/103-7358877-3671056#reader-link
