As to the physics engines:

A "physics engine" interpolates current positions etc. based on the previous state.
For smooth integration of server info, we might want two physics engines client-side:
one which instantly accepts all server updates, and one which doesn't. The one that
doesn't, however, smoothly adapts to the instant-update engine. This second engine is
also the one the graphics goes by. 

Or can we somehow integrate this into a single
physics engine? One where each object has two states? Probably better.