Well, if you used sprites for text, then it can certainly interact with the physics engine.
The trick is how you do it.
One way might be to have individual images for each letter and create a sprite for each one, as needed, and then keep the sprite ids of words in something (easier in Tier 2 with structs and classes that let you use lists and arrays within them than in Tier 1 which does not let you put arrays in typedefs).
Another might be to create the word using basic text, then grab that segment of the display and create an image and a sprite from it and then remove the text and display the sprite.
Just a couple of rough, quick ideas.
But, there is no way, at present that I can think of, to make the text objects themselves interact with the physics system.
Your basic idea sounds interesting.
Cheers,
Ancient Lady
AGK Community Tester and AppGameKit Master