I think Bullet has something for soft body physics already, though I guess it would be different from this. The problem here is that there's lots of collision checking and deformation computation, that should really be done on the GPU. But the collision part is problematic to get on the GPU, and CPU/GPU combination suffers from latency between the two.
I didn't give many thoughts to it, however. Been talking with those guys but we couldn't come to terms. Actually, I'm glad they have found their way