Nvidia spend time and money developing PhysX (It's a SDK so developers don't have to write their own physics and worry about hogging PC resources ) and creating a hardware architecture (CUDA cores) to allow games to run smoothly using physics (CPUs are not very efficient at this because they are not made with the intent of doing large calculations lots of times). This has been round for quite a while just never used. Nvidia bought PhysX from another company though.
So no Nvidia is not the bad guy, they are trying to improve there customers gaming experience. ATI could easily make their own systems however they do not.
You have absolutely no idea at all what you are talking about...
PhysX can and has been run on CPUs perfectly fine. Nvidia deliberately didnt use SSE instructions sets to achieve this prior to SDK 3 (PhysX uses stone age X87 instructions). End result, you must buy Nvidia for some extra eye candy. Even worse, you must have ONLY nvidia cards. Heaven forbid you buy AMD for your primary, and then Nvidia for PhysX. Thankfully Nvidia rewrote their drivers so that you are not allowed to do that, how kind of them.
As for AMD not doing the same... They actually have... Heck, they even tried open initiative that anyone could have used.
The only people to blame here is ATI.
But of course, AMD is at fault here

They are to blame for not having as much money, and being strong armed out of a piece of the market via good marketing (Physx brainwashing is evidence of this) and heaps of cash. Do you even know that the co founder of Physx is actually disappointed by what Nvidia has done to it? He wanted physics effects to be common and widespread, not some silly proprietary tech that Nvidia uses as a marketing tool