Wouldn't having a good understanding of physics mean you know that a women doesn't slide down the road when she walks? Wouldn't it know that a woolly mammoth doesn't emit profuse amounts steam when walking on frozen snow? Wouldn't the model know that legs are solid objects in which other object cannot pass through?

Maybe I'm missing the big picture here, but the above and all the weird spatial errors, like miniaturization of people make me think you're wrong.

Clearly the model is an achievement and doing something interesting to produce these videos, and they are pretty cool, but understanding physics seems like quite a stretch?

I also don't really get the excitement about the girl on the train in Tokyo:

In the Tokyo one, the model is smart enough to figure out that on a train, the reflection would be of a passenger, and the passenger has Asian traits since this is Tokyo

I don't know a lot about how this model works personally, but I'm guessing in the training data the vast majority of people riding trains in Tokyo featured asian people in them, assuming this model works on statistics like all of the other models I've seen recently from Open AI, then why is it interesting the girl in the reflection was Asian? Did you not expect that?