Do you have a reference for how to extend Newtonian mechanics to collisions or passing-through of point particles subject to gravity? how about people complaining about 3 body collisions?
Bringing in energy and momentum doesn't sound helpful to me because they are both infinite at the point of collision.
My understanding is that both of the choices has a unique analytic extension to the complex plane away from the point of collision. Most limiting approaches will agree with this one. In particular, Richard Kennaway's approach (to non-collision) is perturb the particles into another dimension, so that the particles don't collide. The limit of small perturbation is the passing-through model.
For elastic collisions, I would take the limit of small radius collisions. I think this is fine for two body collisions. In dimension one, I can see a couple ways to do three body collisions, including this one. The other, once you can do two body collisions, is to perturb one of bodies, to get a bunch of two body collisions; in the limit of small perturbation, you get a three body collision. But if you extend this to higher dimension, it results in the third body passing through the collision (which is a bad sign for my claim that most limiting approaches agree). When I started writing, I thought the small radius approach had the same problem, but I'm not sure anymore.
We've discussed Edward Nelson's beliefs and work before. Now, he claims to have a proof of a contradiction in Peano Arithmetic; which if correct is not that specific to PA but imports itself into much weaker systems. I'm skeptical of the proof but haven't had the time to look at it in detail. There seem to be two possible weakpoints in his approach. His approach is to construct a system Q_0^* which looks almost but not quite a fragment of PA and then show that PA both proves this system's consistency and proves its inconsistency.
First, he may be mis-applying the Hilbert-Ackermann theorem-when it applies is highly technical and can be subtle. I don't know enough to comment on that in detail. The second issue is that in trying to show that he can use finitary methods to show there's a contradiction in Q_0^* he may have proven something closer to Q_0^* being omega-inconsistent. Right now, I'm extremely skeptical of this result.
If anyone is going to find an actual contradiction in PA or ZFC it would probably be Nelson. There some clearly interesting material here such as using a formalization of the surprise examiation/unexpected hanging to get a new proof of of Godel's Second Incompleteness Theorem. The exact conditions which this version of Godel's theorem applies may be different from the conditions under which the standard theorem can be proven.