Collision physics & Mega-Prims

I've been having a discussion in another SL related forum regarding use of mega-prims and I was looking for some specific answers or observations regarding collision physics. There is a RP/Combat SIM that has reduced it's mega-prim build to help reduce lag within it. We have gone over the rendering aspects, both client and server side, and I think reached consensus that in a normal SIM a reasonable sized mega-prim (say 40x40x40) has a nil or positive effect on lag and is a more prim efficient building option. The remaining point of debate is that the physics and particularly the collision physics are what's causing the lag.

Can someone please outline where the physics might breakdown and why, or any other factor which might be at play. The combat aspect of the SIM involves machine guns so please take into account a high rate of collision and if there is an inherent problem are there any possible workarounds.

Many thanks for any who can enlighten or provide some observations.

Whats the need for mega prims in a combat sim? Do they get used for buildings?

Yep, it's a an urban industrial setting.