The collision detection system checks whether physics objects and wall faces intersect, then applies corrective forces to keep the object on the correct side of the wall.
If the object has a high speed (relative to frame rate and wall thickness) then it could move from one side of the wall to the other side within one frame. To prevent this I trace a line from old position (center of bounding sphere) to new position. If the line intersects a wall, the object gets moved to a place approximately in front of the wall.

These are the three places where something could go wrong: face collision is not registered, line collision is not registered, or corrective forces are not accurate. Since the ERP/CFM settings have had an impact (and they tweak the corrective forces) I am afraid that this is where the problem comes from, which means it will be very difficult to fix.

Is it possible to move the ball automatically through level geometry in a few frames by applying large torque/forces? What are the ERP/CFM settings in order for this to occur? If anyone can achieve this, please send a script/level to mgrubert@conitec.net, so I can step through it and figure out exactly when things go wrong.

Also, there is a level restriction which is not mentioned in the manual, but was discovered by Ventilator:
Physics levels must have an enclosing volume, e.g. a skybox. If this is not present then the physics engine will assume any objects outside your level geometry to be invalid.