SkyNinja: It's an issue with the game running at a high FPS, which itself is an issue with the DirectX 8 implementation on modern systems. Same thing happens with Manhunt. I recently added a section to PCGW about it, but basically, just add a D3D8 to D3D9 wrapper to the game's folder. This will make the game crash if you enable antialiasing in-game, though. Forcing it through your graphics card's control panel still works, though.
The wrapper I use is called d3d8to9 by Crosire, is available at the Reshade website, is open source, and is the one linked to in the PCGW article. There are others available as well, such as one at ENBDev.
I used the latest
dgVoodoo 2 (v2.54) as a D3D8-to-D3D11 wrapper (copied
MS/D3D8.dll into the game directory). This fixed the physics issues. Also, anti-aliasing works! (I have all in-game graphical settings maxed-out). Though, there is an unfortunate side-effect: FMVs (such as the 'Rebellion' logo intro) are no longer visible.
I also used
RiptoR's Custom Resolution Tool to adjust the aspect ratio and FOV settings to suit my monitor.
Tl;DR: the game itself appears to work perfectly on modern systems with the above fixes; breaks FMVs.