They did fix it, in Crysis Warhead.
Cryostasis uses an engine called AtmosFear, which is pretty damn nice.
I do admire the use of the water physics, but it just doesn't look real enough yet. Too blobby and thick looking, doesn't look good enough to take on the faked particle effects of games like Bioshock yet. However, I do think this is an early version of something that will be commonplace in the future, with physics loads being taken off the CPU and onto the powerful modern GPUs.
Even Warhead runs like poop compared to Cryostasis... and still doesn't look as good.
I agree the water effects are a little "blobby" but considering what they are trying to pull off it looks very convincing overall. It does tend to look a little "mercury-like" when it's landing on dry ground... it needs to dissipate a little more or something.
And yes, you are right about this being more commonplace on games. Nvidia only JUST released the proper PhysX support control in the latest drivers. If you have an Nvidia 8xxx or 2xx series card, then I highly recommend you get the newest drivers if you haven't already.
Also, I think it would be a really good idea for the dev team to take a little look into the whole PhysX thing... I'm no programmer, but it is apparantly VERY easy to implement since all of the coding is modular, and doesn't require intense physics systems programming (since it's all built in!).
~Sol