On a technical level, they can, but NVidia actually prevents them from doing so, because well, they own the tech, its not "open". There were community created drivers for ATI cards that allowed them to run Physx, however NVidia put a stop to it. Last supported card was the 2900 IIRC.
NVidia likes creating and pushing propriety tech and software eg. 3D Vision where can only use their glasses, Physx obviously only on their cards. If they become widely adopted, it locks you in. From a business perspective, very profitable.
ATI seems to like to push open standards more eg. 3D via the new HDMI standard where can use any 3D glasses. I'm sure if there was an open standard for physics processing on the GFX card, they would hop on that as well.
In a very weird way, its like all the propriety stuff Microsoft introduced in Internet Explorer 6. Now that the web is fighting to become more standardized, there are crap piles of web sites and shitty intranet applications that are designed specifically to use those propriety features (htc and ActiveX for instance) that keep people using IE6. They're locked in.
Havok FX could have been very exciting for both consumer and developer, as it would be GPU based physics processing that worked on any GPU. Physx level physics in almost every game? Sign me up! Unfortunately, it seems like Havok is no longer actively working on it as no news has been released for it years.
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