While XNA is a good games platform for 3D games it does not come with a built-in physics engine.
BEPU, who makes a XNA physics engine, have however come to the rescue with a 3D physics engine for XNA on Windows Phone.
The engineâ€™s performance is slightly slow at 800×480 resolution, but simply reducing the resolution and upscaling using the built-in scaler results in more than adequate performance.
Read more about the engineâ€™s implementation at RobMiles.com here.
Thanks Paul for the tip.