I agree Physics has become an important part of certain genres of gaming. However, I don't think it has done so at the cost of AI. Every project I know of has dedicated AI programmers, and indeed more AI programmers than Physics, and if you look around at who is hiring it is clear how in-demand AI programmers currently are. The Graphics vs Gameplay balancing-act has eased somewhat thanks the the GPU. Now the graphics has its own processor it freed up a lot of CPU time to Gameplay, Physics, AI, etc.