It's a CPU vs GPU thing, there is no ATI anymore it's AMD and they are a CPU maker.
What we're seeing is CPU makers under threat from GPU's. Both Intel and AMD understandably want to keep physics on the CPU regardless of how much better todays GPU's are at it by comparison.
Keeping physics on the CPU will give AMD/Intel something to work towards in the future (actually getting CPU's to run physics decently), if physics is done on the GPU where do the CPU makers go from there? sure they'll still release newer CPU's but upgrading them won't have as much impact on performance.
There was even rumours a while back of NVidia making a x86 CPU but not having the license, it's more likely they were using the GPU to accelerate x86 performance.
http://gigaom.com/2008/04/11/can-nvidia-kill-the-x86-architecture/
CPU's are are under threat so neither AMD or Intel will embrace Physx with open arms regardless of how much better it is compared to anything they can offer in the forseeable future.