I found the bug. And I was the one who introduced it while introducing the Beta code. Verifying the fix, and will hopefully get it in this release. Please let me know if this is a problem for anyone else. I can help you bypass the bug by enabling my Beta feature on your game if it is a problem.
See this beta Thread for details on how to get it enabled for you:
http://devforum.roblox.com/t/any-volunteers-to-test-physics-interpolation/29307
EDIT: Definitely got the fix in for next release.