AI and Physics can be dealt with. What's more important (methinx) is the
kind of environment+characters u want to render. DIII will be better suited for "out of this world" type games (like Star Wars) while Source will be better suited to "real-world" games (like Deus Ex 3 say)

. Again, character modelling is the one big advantage Source's got according to me.
Also, DIII methinx is more..umm...realistic while Source rendering is more..uhh..beautiful (like Far Cry). Couldn't get the right words, but u get the picture I hope.
Let's try putting it this way - DIII is good for the nuts and bolts types while Source is good for the flower 'n' water types. Arrghh! Guess I gotta go to sleep!
P.S: Agreed that to get DIII running u need a (relatively) better config, but the visual quality is much the same across all those quality settings. The impact isn't that big/visible across various h/w. On the other hand, there's some visible deterioration in HL (take the water for example) on lower configs, and ofcourse '
different' (

) hardware. So that way, there isn't much of a diff betn the two on the h/w front.

In fact I wld probably say that DIII takes the lead there.