Hmmm looks like you're right after all i am afraid. I checked out my old code and realised it was for a single instance at a time Seems to me though that this particular problem is with C2 and not the actual physics. The option to disable collisions with a specific object should do just that. It should allow individual instances to be enabled and disabled dictated by the object picked. As it stands physics collisions are either enabled or disabled totally ignoring the picking.
Sorry i couldnt help. I would have been surprised if you had missed something somehow