You do realize any physics in a game is an illusion, right? If you want to make a bunch of stuff move in a manner that looks like physics, the cheapest, fastest and easiest way would be to add the basic rules of physics. Any other option would require someone to make a cartload of animations and save those somewhere, and load then when needed. And you'd need a lot of animations to cover any possible outcome.
The only reasonable way to make a leaf move at the same speed as the bodypart is on, is by physics. I mean, moving because the object you're attached to moves, is a rule of physics. Swaying more or less because you went fast or slow, is physics. You can't preset that. Sure, all leaves follow the same pattern. That's physics for ya, they're all the same rules everywhere in our part of the universe.
The walking animations for the caterpillar use physics too. The game increases the rigidness of the spine between legs so it can make it's really crappy walking animation that is designed to "work" for any possible creature. If you take off all feet except two, you'll notice the caterpillar will bend slightly as it turns a corner or looks around, although it'll still try to keep a rigid tail near it's base.
I just made a monkey-like thing by making the spine very long and thin, then adding a bunch of arms and legs shaped like a monkey in front. The result was a monkey with a very long tail, much like the Marsupilami*. When it runs in circles, the tail curves along, although it tries to keep straight near the legs. When it jumps, the whole tail does the mexican wave without the audience. That's physics.
Spore creatures are ragdolls, really. Except unlike in humanoid ragdolls, it has to figure out for itself which joints should be stiff and which not. The basic rules appear to be anywhere between limbs, and the bit with the head on. The other rule is that legs are always rigid and the feet are glued to the floor, which is indeed not very physics-like, but the only way to make "impossible" creations impossible. They probably did that to make the game accessible to everyone and not limit creativity. (big fail, really, creativity is all about limits and working with those)
A creature with a head 13 times the size of its body should indeed fail, but Spore just assumes it has really strong bones, muscles and balance to keep it upright.
Let's make that "I didn't do anything about the decline of Spore because I felt had no right to.", you're right about it not being illegal, but I don't see what freedom of speech has to do with it. Being allowed to voice an opinion doesn't make said opinion any less unfounded or biased. I'm not gonna complain about a luxury product I haven't bought yet, don't have to buy, and doesn't affect my life in any meaningful way if it turns out to be total crap. It's not even personal.
It's not like they went up to me and said "Hey Rho, we're gonna make this awesome game for you, promise!" and then failed at it. They just said "Hey people that pay our wages, this is a prototype of a game we're gonna make, please pay us!", and "Hey people that buy our stuff, we're gonna make a game and so far we think it'll look like this. Buy it if you're interested, eh?"