The problem with twist bones and Biped is simply that, the twist bones are linked to the upper arm, while the hand is linked to the lower arm. So during physics simulation they are being separated. If the hand were linked to the twist bones, it would actually work, though not ideal, it would work.
The way the setup needs to work is that the twist bones should also be linked to the lower arm, they will simply follow the lower arm during physics simulation. The twist bones don’t actually get any bodies or anything, they just move where the arm moves, following their parent bone, just like the hand would. And so there’s no separation and the physics setup can be simple, just a two bone influence for the arm.
The solution for this is like I said before, by creating a custom skeleton that gets driven by Biped. Really the only reason for this is because Biped, as far as I know anyway, does not allow you to change the hierarchy. If it did, you could simply fix it right there, but I don’t think it can.
It sounds like a lot more work, but it really isn’t. You can even go so far as to snapshot the biped to simple hierarchy of meshes and use them as bones and you don’t need to create a second skeleton from scratch. Just make sure the twist hierarchy is correct and then you just need to constrain the individual bones to the biped, which is quick work with a simple constrain shortcut key. It can take a few minutes, which is a small price to pay for total control on the skeleton and the advantages of Biped on top of that.