Kloonigame's Crayon Physics Deluxe is a fun, interactive physics game that works well on a touch screen. It is not as complex as Algodoo, as it doesn't require the player to interact with lots of settings.
The above video is of the commercial version of the game. It is a labor of love by Petri Purho, of Helsinki, Finland. You can find Petri's games on the Kloonigame's website, including the free version. Crayon Physics won an award at the 2008 Independent Games Festival.
Article: Indulge your inner child with 'Crayon Physics': Wonderful game looks like it was plucked from a 5-year-old's coloring book (Winda Benedetti, MSNBC 1/13/09)