Emil Ernerfeldt, a graduate student at Umeå University in Sweden, has developed a 2D physics engine, Phun, for his master's thesis project. Phun is part toy, part educational medium. He describes it thusly:
"Phun is an educational, entertaining and somewhat addictive piece of software for designing and exploring 2D multi-physics simulations in a cartoony fashion. It is part of our long term mission to bring visual physics based simulation to the masses. The application is developed for Umevatoriet, Umeås new science center, where it will run on a large interactive display, but you can also download it and run it on your own pc."
Which you can do by clicking the link below.