If games can track dozens of bullets being fired by twin miniguns on an AH-6 independently with bullet penetration and ricochets on top of everything else that happens to be going on including the thickness/composition of objects being penetrated by said bullets and flight model required to keep the AH-6 in flight... I don't see why 'realistic sword physics' would be too hard to do.
Besides, it doesn't even have to be realistic sword physics, just some kind of feedback of some sort that your sword has struck something. Warband already has this, but it only applies to scenery objects (and the terrain in some mods) where if you swing a weapon and it hits an object it will bounce off.. It's a pretty rudimentary system but it shouldn't be too insanely difficult. For a more advanced system just imagine stabbing somebody with a spear (or any weapon really) and having your weapon actually punch through their flesh (and bodies in some cases) and your weapon actually 'sticks in' to them for a second before you yank it out. Or what if you hack at somebody's head with your battle axe? Surely your axe would be stuck in their (presumably unarmored) head just before they ragdoll to the ground. Procedural animation can already pull this kind of stuff off, it's just making sure that players aren't doing silly things like jumping around or spinning like a top while they happen that would make it difficult. They would need to redo the way movement works before fancy stuff like that would happen, and if they don't rework the whole system then the more rigid animations would work fine as long as the system knows just when to 'stop' the animation and play a recovery animation.
EDIT: What I would really like to see though is a damage system based more on the 'follow-through' of the attack more than the initial point where the weapon has struck.