It's a pattern a few remasters have used: Run the entire old engine for the game logic, but bolt a more modern engine on top for the rendering. So it's not just physics but pretty much all gameplay logic thats done by the old code. Which is also why mods that don't touch graphics were apparently easy to port to the remaster, but changing models etc needs adapting to the new system.
> Game pass doesn't seem terribly popular
It seems fairly popular right now. If you are the kind of person who wants to play many new releases it's a great deal.
But I think it's not particularly sticky: it's a great deal for as long as Microsoft invests into it getting many titles immediately. If they stop doing that, that same audience segment doesn't really have a use for it anymore.