I've seen Toady's code for Liberal Crime Squad. I'm sure he's improved since then, but his consistent mentions of "unsanctioned mess" and "real programmers" makes me think that DF's code may actually be bad, not "a bunch of structs and functions all packaged up in a single file" bad, but bad. Sure, he may be the only person qualified, but it's not like one can't make a really good guess.
I wouldn't say the problem is that it's too complex, it's that it's too different. This is definitely a good suggestion for if I decide to start my own game, but I don't think it's reasonable to expect something this different to be put into DF because it's likely there's a bunch of weird shit in there (I.E. all of the map generation code, as mentioned earlier) that relies on tiles. I think I've seen Toady mention the algorithms he uses for site generation on the tile level, it's all very tiley from what I can tell.
And yeah, reductionism is not convenient for computer science at all. Reality is probably turing-computable, but abstractions are just as good on most scales and orders of magnitude of orders of magnitude faster. Even professional flight simulators are going to use abstractions instead of modelling each individual atom of air and plane using quantum mechanics.
That's an exaggeration compared to what you're suggesting, but it's sort of part of my point; the game already has FPS issues and implementing real-life physics is liable to make it worse, not better.