Because of cpu resources. In physics mode, the game checks collisions, apply forces, torque... on every frame, so several tens of times per second. This can be cpu-intensive with heavy builds in complex situations. If you wanted this to work reasonably in time-warp mode, you would have to increase significantly the physics calculations frequency, meaning more lags. Otherwise you don't change the physics calculations rate, but the simulation becomes unrealistic because a lot of real time would pass between 2 physics calculations (2 objects could fly through eachother without any collision detected, because basically the collision happened between 2 frames).
That's why it's possible to still have physics enabled with a reasonable time-warp factor, but at some point it can't be viable.