I've heard some schools do this. True in general?
This is probably much less true in engineering. There is a much higher proportion of engineers who are not at all interested in academia but go to grad school to enhance their professional skills. For this group, the PhD doesn't usually make sense vs just getting the MS and working.I'm not saying this is fair, but where I'm at, doing a terminal MS degree implies that you were rejected from every single PhD program you applied to.
It seems that most people in Physics either search for employment after undergrad, or they go all the way to PhD. No one does the MS unless they "have to."
It depends on the school. At mine, a good chunk of the engineering/comp sci phds got masters degrees and then realized that they wanted to go into phd programs. A friend of mine applied specifically for a masters program and was told she could probably get funded for a phd if she continued on. Basically, from what I've seen of engineers (US, public university), getting a masters doesn't kill their chances of getting into a phd program.Then again, I don't know how many of these types of students end up applying to PhD programs.