Search for "worms" there is an example that uses the canvas plugin to do destructible terrain.
Another idea would be to set the bottom layer as transparent "use webgl" off, and "clear background" as no. That way anything that is drawn stays there until it's overdrawn. Then you could draw the terrain, and only redraw the parts where stuff is moving/changing. You can store the entire terrain in an array and juggle a small amount of blocks to do the drawing. So at any given time you'd have only say 100 objects being drawn per frame but you would see 1000s on screen.