Peege, as I've posted earlier, your son has a wonderful opportunity at the U of M. He must, indeed, be very bright, and will need all of his talents to succeed in physics. It's certainly a challenging field, not for the faint of heart!
I'd like to offer a comment on one aspect of your posts, because it's something that may apply to many other students and families who read this thread. You say, "...I think one of our biggest mistakes was not recognizing how gifted our son was. We knew the competition was tough and thought with 15,000 National Merit Finalists and adding in all the special cases (athletes, alums, kids with significant research achievements or other achievements) it was a long shot."
I feel that there is a belief expressed here, that high scores on standardized tests should be enough to qualify for any elite college. The reality, as others have mentioned, is that high scores are merely an entry criterion. The National Merit semi-finalist status, for example, is based on the PSAT taken in Junior year. The cutoff varies significantly by state. So, for example, the cutoff in 2005 for MN was 215 but the cutoff for Maryland or Massachusetts was 222. Does that make a student who scores 216 in Minnesota brighter or more deserving than one who achieves the same score in Maryland?
National Merit Cutoff
As I mentioned, the reason for my post is to focus on the idea that college admissions is not based solely on SAT or PSAT scores. For students to rely on this one measure is to set them up for disappointment. From a parenting standpoint, I also believe it is a mistake to communicate to young people that their value is determined by this one measure of the aptitude and ability. Hard work and motivation are much more important than native intelliegence (once a threshold has been reached) to success in any given field. As a parent of a high scoring student, I can tell you that it's not enough to just do well in high school and on SATs to be successful in tough disciplines. My son did score very well on both SAT I and SAT II's, but I'm sure he'd tell you that his honors physics series and upper division math classes have been pretty challenging this last year! I had to adjust my expectations about his grades, and realize that an A- or B+ in some of these classes was quite an accomplishment.
Finally, the real issue for most kids is not just getting INTO a selective college, but being successful once they enroll. The level of intellectualism and achievement really is VERY high, and even very bright students may find it difficult -- I think that a student who isn't really prepared may find the struggle to be too much. This is why I think that colleges do place some value on SAT II scores and AP exams -- they tend to show that a student really is ready for the demands of a tough major at an elite college.
I bring this up more to warn other parents than to suggest that this was your only criteria for judging your son's abilities -- he does sound like a very bright student, and I wish you all well.