I've been playing with OE-Cake a 2D physics-come-fluid-dynamics engine. There are some great examples of what you can do with it on youtube ranging from spectacular to plain crazy (and worse - some adult supervision might be required when searching at primary age-level). There is also a iPhone - ipod touch version called Aqua Forrest.
This description from the OctaveEngine site: OE-CAKE! is demonstration software for 2D-based multi-physics simulation. In a way similar to drawing images using paint software, users create objects and can see them move according to the laws of physics.
This software supports various physical materials with real life properties such as fluids, gases, rigid (hard) objects and elasticity (soft) objects as building blocks. Users can combine these objects to create and play with more complex objects and mechanisms such as cars, gears and moving dolls. Users can also attach pictures and photos to objects and change their shape, break them apart, or melt them. Use your imagination to create your own unique world! Note: OE-CAKE! is software that makes it easy for users to experience the capabilities of OctaveEngine™ Casual, a physics engine for game development.
Download page for Mac (MediaFire)
Download page for PC (4shared)
Here's a screen capture of a string thing I made:
Check out the instructions on how to make a string-thing on YouTube