A listing of different games of the genre.
SyjSand:

Download:
http://www.filefront.com/17735807/Release.zip*use right and left arrow keys to select elements to draw
The first game on the list is one I just made, it is more or less completely modifiable, and is modded by changing the contents of elements.txt and the pictures in /media/custom
The elements.txt file by default contains this:
element water 0 0 255 10 1 0
element stone 150 150 150 20 0 0
element yellow_stuff 255 255 0 5 1 0
element oil 139 69 19 5 1 0
element sand 240 230 140 15 1 0
element salt 255 255 255 15 1 0
element saltwater 80 80 255 11 1 0
element lol 255 150 150 100 0 0
element steam 100 100 200 1 1 1
element fire 255 0 0 1 1 1
element waterspawn 55 55 200 0 0 2
element oilspawn 100 65 20 0 0 2
interaction fire within 1 1 all clear clear 25
interaction water within 2 2 salt saltwater saltwater 100
interaction lol within 1 1 all lol lol 10
interaction waterspawn within 1 1 clear keep water 10
interaction oilspawn within 1 1 clear keep oil 10
interaction fire within 1 1 water keep steam 100
interaction fire within 3 2 oil fire fire 25
To make an element, you simply make a line like this:
element name red green blue weight spreads
And to make an interaction you do something like this:
interaction element type_of_reaction <args>
The most basic type of interaction, the "within" action works like this:
interaction element_name within search_radius_x search_radius_y what_to_search_for replace1 replace2 chance
Basically it says to search within a square radius of the each particle of its element and if it finds a particle of the type defined at "what_to_search" it will replace the searching particle with 'replace1' and the particle it found at 'replace2'. The 'what_to_search' can be replaced with "all" to mean that any particle is valid.
There will soon be a "chance" field, that can add a chance of failure to interact, even if the proper particle is found within the given radius. Chance is a percentage, whole number, from 0 to 100.
Among other kinds of reactions, of course.
The ability to play multiplayer online games together, and things such as heat, and rewinding the sandbox are all features under development.
Pictures for each element are always going to have the path:
"<basedir>/media/content/" + element_name + ".bmp"
And yes, they must be bitmap images, the recommend size is also 50x50 pixels.
Burning sand:

Download:
http://siebn.de/download/burningsand20070320.zipThis is one of the few falling sand games I've actually played, it's quite nice, and has many mod packs available.
I don't need to write any help for it, because all you need can be found from here already:
http://siebn.de/burningsand/bs1
Dan-Ball Powder Game

It is purely an online game, and can be played freely here:
http://dan-ball.jp/en/javagame/dust/Easily one of the most advanced game of its kind, including advanced pressure and physics as well as some multi-partical-objects.
Anything else you want me to add, just let me know.