Division by zero represents one of several things in physics (not indended as an exhaustive list), in order of increasing problematicness:
1) You did your algebra wrong.
2) Your assumptions are wrong.
3) Your theory is wrong.
Examples of 1 abound. An example of #2 would be something like "What is the gravitational acceleration at the center of the Earth? Well, Gravitational force is Gm/r^2, and so at the center r=0 and it diverges". Obviously the incorrect assumption is that we can treat all the mass of the Earth as concentrated at a point while inside its structure.
An example of #3 might be singularities which appear in Einstein's General Relativity. Many people believe these singularities are artifacts which merely appear due to the lack of a quantum theory of gravity, rather than physical objects. I suppose, in a way, this is a special case of #2 where the assumption is fundamental to your theory. But the essential difference is #2 is a modeling error, whereas #3 is a theoretical error.