Sorry, my wording was screwed up. To clarify (from Wikipedia:)
"Each server instance runs a physics simulation to manage the collisions and interactions of all objects in that region. Objects can be nonphysical and non moving, or actively physical and movable. Complex shapes may be linked together in groups of up to 255 separate primitives. Additionally, each player's avatar is treated as a physical object so that it may interact with physical objects in the world.[55] '''As of 1 April 2008, Second Life simulators use the Havok 4 physics engine for all in-world dynamics. This engine is capable of simulating thousands of physical objects at once.'''[56]"
(Havok is proprietary.)
