FUD Zilla has some info on AMD's plans to do Havok physics on its GPUs:
If you remember, Ageia's PhysX would get some cool physics in original Ghost Recon Advanced Warrior but it would also cause the graphics performance to drop. This is not what AMD wants to re-live and we were told whenever AMD decides to do it, that it has to be done right.
This indicates that Physics + Graphics on ATI's GPUs should end up faster and not slower than CPU accelerated Physics and the FPS that you are getting from a graphics card alone. This is a nasty task, as you need to take a part of GPU to do the physics while the other part will do graphics, and somehow you are doomed to lose an FPS or five.
The possible solution is two cards, slower and older to calculate Physics while the second faster card can do graphics; and this would get us back to Ageia's original design, where the PhysX chip was a card on its own.