The earthquake disaster would be fun with the physics simulated. Just imagine your simcitizens and their cars getting tossed around in real time. Or a flood disaster that literally washes buildings away.
Day-to-day operation of the city, I don't know how much a PPU would help. But it could really add to the terrain-generation tools. Like you said, simulating real running water. Probably could get better erosion effects too. It'd be cool if you could designate a river path, then have it erode over a few 100,000 years to produce a canyon that looks like the Grand Canyon.