Quote: "
can it handle dispcement maping "
No
Quote: "melee attacks, weapons b/c i never found it"
Are possible, some model-packs have melee weapons.
Quote: "
can it handle headshot kills"
No. The current FPSC version doesn't support hitboxes.
Quote: "reflections"
No. Sphere/Cube- mapping is possible.
Quote: "
fear this zones, ie ai stays out of these areas"
What do you mean? You can create "hurtzones" that damages player if he enters it, or make something else happen with other event zones.
Quote: "
can you write arena physics since they're not there by default"
Techically you could, but this would require lots of source-code editing.
Quote: "can you make a "gravity gun" and custom projectiles"
No. The player can pick up and throw entities that have physics ON and are "light" enough. Projectiles in overall are quite hard to do.
Quote: "and is multiplayer lan only or can it be used with something like gamespy for online play"
The multiplayer uses P2P-style feature, where all the created servers of FPSC-games are visible. Everyone can enter anyone's game. If I remember right, the LAN connection was possible as well.
Quote: "
and most importantly is there build in graphics(polygon) limits or is that limited only by processing power of the computer i know textures are 512x512"
Not sure about this, but IIRC there is no polygon limit, but it's recommend not to have too many. The texture size limit (512x512) can be removed as well.
Also in case you haven't heard, there is FPSC X10, a DirectX10 and Vista -version in the works that is going to have better visuals and many new features as well.