Hey J,
I did a project this year utilizing Minecrafts and rails to develop a Roller Coaster. I agree that the physics in the game are not "real" and that can be an issue...if you let it.
I took this concept and looked at it from a different angle. Instead of having the students focus on "real" physics and why Minecraft isn't real, I had them focus on experiencing...and testing...and experimenting to discover the physics within Minecraft. Giving the students an opportunity to learn not just physics, but how to "learn" turned out far better than I had expected.
The other thing I would mention is, instead of having the kids run pre-made experiments...have them design the experiments from scratch and see what comes out. The learning and reflections that they accomplish will last far more longer and will set them up for learning in any sort of environment.
As for your challenges:
1. Yes it does...and that is okay. Teach them how to determine that difference, instead of focusing on the differences. After all, it is a game.
2. Students that are invested in the build, are less likely to destroy a build. See my point above about having them design experiments.
3. Um...turn off tnt in the teacher menu?
Hope that helps.
MisterA