OpenMW already uses the bullet physics engine. However, it’s not really exposed to the existing Lua API right now, hence Max Yari implementing physics separately in Lua.

Test footage of Oblivion assets loaded in OpenMW shows that physics like ragdolls or interactive objects is already possible.

A post 1.0 goal is to be a general engine replacement for many Bethesda titles. OpenMW would be a platform for other projects to build OpenOblivion, OpenNewVegas, etc on.