Do a search for "falling sand", there are a few topics on it and i believe I've made a capx example of it. The physics is even simpler than verlet, for instance to fall each particle just checks if the space below it is free before moving one space down.
That being said, it's going to be rather slow unless done with the you with shaders like qwazi's cc example. The paster object could help since you can paste objects with effects applied. But there's likely other details to deal with.