Well you don't need a lot of CPU for doing AI and motion. In modern games, game logic like this usually takes not even 1% of the CPU time.

And more complex stuff than 90ies demo scene stuff is possible easily. There are lots of sophisticated 3d libraries to choose from, take a look at the demos of CopperLicht for example: http://www.ambiera.com/copperlicht/

But you are right: Physics is a major bottleneck. Fortunately, you don't need real rigid body physics engine in most games. In most situations, you can live with a small subset of it.