A more appropriate title would be "Physics simulation vs fun". Balance is pretty flexible. We had a pretty well balanced game with retreat range bonus and we have decent balance now. What matters is whether the balance and physics combine to create something enjoyable.
My approach to physics for ZK is to take what seems fun and discard the rest. The fun stuff is exaggerated to make it chunky and salient, and is often what makes discarding the rest necessary. Physics is a tool, or maybe a foundation, for creating nuanced unit interactions underwritten by things we're pretty familiar with, ie the behaviour of stuff flying around in the world. Visuals and mechanics align to give units more weight and to make interactions more intuitive. What you see is what you get. It isn't that Zero-K aims to have physics or to simulate physics particularly accurately. Rather, physics is used to achieve other goals.
If Zero-K, or similar games for that matter, had full physics then I expect either:
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The physics would have to be neutered to the point of being boring, at which point why even have physics?
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The game would be janky to the point of unplayability, at least for the types of quick and/or casual games you can play in ZK.
Take Ravager for example. It moves at 40% the speed of its projectile. As
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TinySpider points out, Zero-K does not have relativity. Full physics implies relativity. So a full physics Ravager would have significantly more range in its direction of travel. I haven't figured out the maths, but my intuition says the range boost would be significantly greater than 40% (for (1/2)mv^2 reasons). So a full physics game is a game of constantly morphing range ellipses as units move and rotate. A game of Ravagers jittering forwards and backwards to toss their projectiles at distant Stingers.
What is the solution to such a janky physics Ravager? Neuter the physics. Make Ravager shoot at more 'realistic' velocities so that the range bonus is negligible. But few things can reasonably dodge such a projectile, so why even have the physics in the first place? This is the paradox of game physics, at least unless the player has direct control of every manifestation of their will in the world (like in a FPS).
An even harsher restriction on the current Ravager is the imposition of range rings. Ballistic weapon have a range limit but many of them could in theory shoot further. However, without range rings there would be a fixed relationship between projectile speed and range, which constrains unit diversity. Similarly, homing missiles tend to be able to home for quite a bit further than they can shoot. This is a matter of unit AI. Imagine how frustrating it would be for units to keep wasting shots at units ducking in and out of the edge of your units physical missile ranges. As a general rule, more complicated physics generates more ways for unit AI to screw up in frustrating ways.
In terms of ideal long term goals, it all depends on what is fun and below the too janky threshold. In theory, stuff like Reaver overshoot could be solved by giving it a maximum fuse and reworking the unit AI in the engine so that it aims and fires with the goal of dealing some minimum fraction of its AoE damage to the target. The fuse could even depend on the angle of fire (for some weird reason) to replicate the current range behaviours. But I don't see anyone doing that, and something should be done now.
On the retreat range bonus, it still exists on all eligible weapons except for Glaive, Bandit, Scorcher, Dagger and Pyro. Try a Ravager duel. The retreat range bonus was removed by giving those units no leading, so that they fire at everything in range (like a Lotus), and then adjusting the projectile once it is fired to add the leading back in. This works because projectiles have a little bit of overshoot, they don't disappear at exactly the edge of their range. Removing retreat range bonus for Ravager is probably infeasible and would at least look ridiculous.
This reminds me of feedback conversations with supcom/PA people about the retreat range bonus. They said it was something weird that was added onto the game. I asked them why it didn't happen in the games they were familiar with and they didn't know. I'd be interested to know the answer because it must be there unless it was explicitly removed. If other games have anything as extreme as Ravager then its existence, or the method of removal, should be clear after some investigation.
Retreat range bonus was removed from raiders because it was a trap, confused people coming in, and was a big unit AI failure. Losing to equal forces with 0% damage dealt based on quick micro tricks feels pretty bad. The fun of mastering it and destroying incoming players did not seems sustainable. So it wasn't that physics gave way to balance, more that it game way to overall fun. And it wasn't even "real physics" because in real physics Glaive vs. Glaive wouldn't have a retreat range bonus due to relativity.