It's interesting, but the combat being based on those "real" physics (or call them precise, whichever), and the animations not being manually tweaked to appear more "artistic" make it feel strange overall. If every single encounter needs accurate physical weapons (or projectile) contact, and if every single "strong enough" blow on my character's body makes him fall down or tumble and I can't stand up again in time until the next blow comes in (like in the video, ending up pinned non-stop) then I'm sorry but I don't call that challenge. It'd be annoying as heck.
Also, in a combat system based on physics like that, can you imagine the combined physical forces of a group of enemies on you? I mean regardless of actual weapon "powers" or elemental damage... just in terms of physical strength of the blows. If just one enemy like in the video is enough to make your character awkwardly tumble back and forth then I'd imagine that almost every fights would be 1 Vs 1's. If there's a group of enemies on you then you're toast. What if they're archers and you don't have a long-range weapon? Do you just pop your shield (if you have one) in front of you and hope that not every single arrow hitting your shield will break your arm or just pierce through the shield?
Ironically, with physics being so important to them in a game like that then perhaps their project needs to be focused on "realism" and should be set in a Dark Souls-esque game (yeah just think Dark Souls turned simulation), rather than in a fantasy game that's supposed to combine the ideas of Morrowind and GTA game-play. I don't see a wide audience being interesting by an actual game like that, but I do see lots of people being perhaps impressed by the technology. But good technology and nice physics doesn't mean your character needs to look bad when running around, and doesn't mean that each time I want to swing my sword it feels like it's weighting five tons.
Give me environmental physics, sure, but give me manually and artistically-inspired animations of the likes of those in KoA or GW2 (and many others) and we'd be on to something then. I don't want to have to think about my character's physical balance before and after every single sword swings. But anyway, maybe this is just me. I wish them good luck on their project though.
I would like to see the finished game. Unlike Zenoth, I really like the idea of physics based movement in everything, even if it looks a little wonky. And I like the idea that if you get ganged up on, then you are likely to die. Those kinds of games are always my favorite. (The Witcher 2 is one of my favorite games of all time.)