I noticed the Physic still seem a little inaccurate.
http://www.mediafire.com/?fy8eo9y4kgi8iz2
Doesn't seem to bounce right.
definitely doesn't seem right in that cap, but I think it had more to do with the specific physics settings. depends on what you're going for of course, but I just changed the linear and angular damping from 100 percent, because the lack of momentum was making the bouncing really stiff, but more important was removing "no rotation". the spin of the balls as it hits surfaces goes a long way toward realistic bounce movement.
http://dl.dropbox.com/u/1013446/engine2.cap
if you need it to behave that way, but still look upright the whole time, I'd just an invisible physics sprite, and set the image sprite to it's location every tick