When it comes to real instruments, Roland ships physical modeling in some of their instruments. They are a mainstream company.
So I think physical modeling is there but harder to get right than recording samples of piano keys being pressed. The results can be been convincing and it's nice that it requires little memory compared to sample based techniques.
It's to the point where you virtually put microphones around the virtual instrument and it behaves (according to the person who does it for a living) creates an intuitively correct sound.
Edit: and to be clear this was a demo from before the LLM times so it's something built the traditional way.
You can bring this distinction back to recomps, too -- one area you can't use a vibed recomp over an emulator is things like TAS's[0], since the TAS community has strict rules about staying compatible with the original hardware, including doing things like sending the TAS inputs into an actual console to verify it works properly. A recomp is likely going to have minor (or major) compatibility issues that would prevent this from working. But it won't matter for 99.99% of players.