Physics engine

#1 The answer to that is...it depends. What kind of game are you making / what kind of physics do you need? I've made a platformer and a space shooter and the built in physics were more than enough to handle what I needed. If you really need advanced physics then I believe several other people have integrated Farseer without too much difficulty.

#2 It's a puzzle platformer, so I need to have stacking movable objects that my character can also jump and stand on, which I read a thread about not being possible with torque's physics, something about objects going through the floor when the player stand on the moving objects.

Does torque support concave polygon collisions? I would probably need that for some levels.

#3 I haven't tried stacking them, but I do have movable objects that the player can jump and stand on and haven't had an issue with them going through the floor.

TorqueX does not support concave polygon collisions. The workaround I've used for that is to create multiple SceneObjects with convex collisions that overlap to make the concave one. If it's for a static object you can just place them over it in the editor, for moving objects they can be mounted to it.