Physics work better on the Moon!

It looks like Torque works better in low gravity :)
The trick was to leave the engine to calculate mass and inertia of the colliding objects by itself (look for an appropriate checkbox) , rather than blindly fiddling with values.
The gravitational force was also decreased by half, so the ship can move more swiftly.

What it also worth noting is that it took me about 7 minutes to create Moon-like landscape, including drawing graphics from scratch, importing them into the editor, rotating, scaling and equipping with the collision mesh and placing on the level map.