Here is a little demo of my new character controller, using a specially designed "physics system". The main difference compared to my previous (which was used in the Penumbra games) is that the other bodies do not "know" about it. Previously I used a static body that the other bodies would bump into but this was not very good when I wanted more interaction, so I choose instead to have the character be a kind of force field in the world and add forces on bodies that comes near it. For it's own collision it simply do a world collision check.
The reason I did not use a dynamic body to simulate the character is that I want 100% control over behavior and when using a physically correct body there is a lot of problems one runs into. Using this approach I can control the behavior very exactly which one can see especially at slopes and stair climbing. The main problem is that when connecting other bodies to the character there are some stability issues and also the character can go through walls and floor if a heavy enough object hits it. These are just special cases though and generally it works very well.
In the video, watch out for the two way interaction with the seesaw. The character can push it down and when enough force is applied on the opposite side it will push the character up. This is something I do not know any other game that does (except for marble madness clones, car games and other games that use a physically correct object as "characters"). Mostly games uses a kinetic body that pushes everything out of the way (like my first implementation).
Now for the video:
http://www.youtube.com/watch?v=S26HphuXioU