if a player picks up a cube, then walks to the edge so that the cube is over the edge, will the cube fall down? especially if the player is positioned like so, with just 1 pixel of his leg on the edge of a cliff:

nope, you are still grabbing onto it so it won't ever escape you.  Also note that the crate is only 2 pixels by 2 pixels

The physics im talking about is because then every block would both have to continually check its position against the players position, and all other blocks.  If you pushed a block into a portal, and it was halfway on one side, you would still have to push the side thats on your side.  If you are pushing two blocks in a row, and you push them into a Portal, then weird things can happen.  Like if you push blocks horrozontaly into a portal, and they come out vertically from another.  They would have to start stacking upwards, while delivering the force of their weight back down through the portal to you.

And im not even considering the fact that when you move into a portal, you orientation doesn't change (as it should) you always remain vertical.  The physics of pushing blocks is not tooo bad, although too slow for my liking.  The physics of pushing blocks through portals?  A nightmare.  The way i have it right now, blocks dont collide with each other, and they dont collide with the player.  They do through Portals normally :]

I had to generalize the portal code though, so it would work for not just the player but for all objects

No demo just yet I need to get boxes fully up to speed.  I have them working basically but there are still issues when grabbing and dropping.  I added a feature, however, where when the box is merely sitting on the ground, it goes into a 'power saving' mode where it only waits for either being grabbed or the ground to change.  It doesnt even update the position or velocity variables.  So the box can have 3 states:

1) Projectile Motion
 when has a non zero velocity and when it is not resting on the ground
2) Still
 when the box is just sitting on the ground
3) Grabbed
 when the box is tethered to the players movements

This prevents slowdowns when many boxes are on the screen at the same time

Can you still hit it with other boxes, or have some sort of interaction with it without grabbing it?

Perhaps have this in a 6 MHz version, and have full physics at 15 MHz?

Aww
Okay.  You may want to look into how Valve does it, they mention it in the developer commentary.

That seems like it would be a lot of work

I think it's fine as it is planned now. It's already revolutionary for a calc anyway.