1) Consoles are limited in numerous ways, they are almost always inferior to the PC when it comes to graphics, that difference can and is explained by lack of hardware to keep up with PCs.
2) It is trivial, I've developed with the Unreal Editor ever since UT99 and it's always had emitters that can emit physics enabled particles to simulate smoke and fog.
3) It's perfectly relevant because it demonstrates that it's not a technical barrier, if it's not a technical barrier it requires some other explanation.
4) Yes it's conjecture, I said in my previous post it's not an exact 100% proof, but in day to day reality, what is?
It's perfectly simple, we have a boat load of games released every year, the vast majorety of which ship with basic effects for everyone, then we have these PhysX games were basic effects are locked to GPU acceleration only when we know they need not be.
It doesn't matter if it's nvidias influence, it doesn't matter if it's the developers secret deals or wanting to keep nvidia sweet for their time and resources, it doesn't matter if someone was paid off, under the table or not. it doesn't matter if the whole thing is just an honest mistake...
What matters is that the introduction of PhysX while increasing the quality of the game for nvidia users, decreases the quality of the game for everyone else, because there's a trend for PhysX enabled games to lack basic features that statistically tend to appear in games of this class.
It'd be some MASSIVE coincidence if it just happened that most games PhysX is apparent in also would have never used this basic effects that every other game seems to manage to put it, seriously guys...