Before we go getting too excited, I have to say that a physics engine capable of even remotely accurately modelling the sort of collisions, slices, deflections etc. in a mount and blade battle would require a computer far more powerful than the average home user currently has. Physics engines are PROCESSOR intensive. Mount and blade is already PROCESSOR intensive. See the issue?
Most games that include physics engines are, on the whole, VIDEO CARD intensive, hence the extra strain on the processor doesn't make much difference. That is not the case with M&B. Adding any (even a really ****ty) physics engine will seriously reduce the game speed, which is already only acceptable (i.e. not great) when using the battlesizer mod (which, IMO, is almost essential to enjoy the game to its fullest).
At best, any physics engine would need to be an extremely cut down version of reality. An EXTREMELY cut down version. And considering what we have in game (with some little tweaks needed to charging and "bunching") already feels like a cut down version of reality, coupled with the degraded performance we will see if it is added, I question the need for a physics engine.