The R500's HOS AFAIK is essentially a fixed-function tesselation unit combined with a geometry shader. This is considerably less flexible than an SPE, and to use its geometry shaders, the R500 had to borrow them from pixel shading, whereas with CELL, it runs in parallel.
As for collision detection, it's just not true. Most collision detection algorithms use a hierarchical approach. At any given time, you do not need to check every object against every other, that would be insanely inefficient, even on the XB.
Moreover, it is likely that the SPEs would be tasked to handle multiple time-step integrations and constraint solutions in parallel, while the main PPE assists with scanning a hierarchical collision structure. Once rough a rough partition of the problem set is decided, the individual "high precision" collision checks can be offloaded to SPE.