Maybe you could give us an example model if what you have in mind and we can add on a few tricks to simulate an explosion.

I haven't heard of that one before, what SketchPhysics version are you running?

Try deleting the SketchPhysics files from your Sketchup/Plugins folder and try installig it again, preferably version 3.2
http://code.google.com/p/sketchyphysics/downloads/list

Well I had a quick look on google and found these:
http://answers.microsoft.com/en-us/ie/forum/ie8-windows_xp/unable-to-enable-javascript-in-ie8/0aba6b02-5783-49ca-a27b-6636e43ed1dc

I can't tell if this will work but it's worth a shot.

I'm not sure if Windows will allow it but try installing versions 8 or 7, I got 7 and it works... fairly well.

But before that make sure your browser isn't blocking scripts, because I heard IE9 is locked down pretty tight by default.

The error is unknown to me, usually things like this are fixed by copy/pasting all the elements into a new model so it gets a clean slate.

As for movable geometry, yes it can be done but SU has a pretty severe bottle neck on drawing geometry so it will cause alot of extra lag.
Wacov's cloth example

Well SP adds in elements via Javascript so the most likely culprit for the UI to stay empty are your browser settings, it needs to have javascript enabled.
Or maybe it's an issue with the IE version, I hear some of them cause problems when combined with Sketchup.

Well the crudest but still working solution I had was to just copy paste the socket.so file to the Sketchup/Plugins folder.

I'm sure doing that is all sorts of sacrilege, but it works.

Well yes IE is essential to all Sketchup UI stuff, but without it the Webdialogs wouldn't turn up at all.

What if you try File -> 3D warehouse -> Get models, does that work?

Turns out it wasn't that big of a deal getting files to work, so here is one simple example.
If you got any questions just ask away.

file-output.skp

Well then I'm quite lost.
If you open up the Ruby Console and then try using the UI or running SketchyPhysics does it report any errors?