Real time physics simulations of deformable objects these days tend to be based on fairly accurate physics models. The major issue facing such simulations today is that it's difficult to simulate extremely rigid objects at high frame rates, due to the non-linear aspects of the underlying forces. The challenge is to take shortcuts and find optimizations that gets you decent looking results while not being overly slow or unstable.

Here's a good paper on some of the technical details of a fairly sophisticated system used in a video game, if you are interested: http://graphics.berkeley.edu/papers/Parker-RTD-2009-08/index...