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So just install the Physx driver from here:
http://www.nvidia.com/object/physx_9.09.1112.html
It seems the payday 2 free weekend has messed with my drivers
You can certainly use the older version provided by Steam with the game, but the latest physx system software contains numerous previous versions and will work with AA just fine, and gets installed with the latest NVIDIA graphics drivers anyway.
Also, you need to install the physx system software even if you have an AMD GPU.
Why would there be? the game is 5 freaking years old. It's long since out of active development.
1.) Install the latest and most updated PhysX driver.
2.) Go to C:\Program Files (x86)\NVIDIA Corporation\PhysX\Common....or wherever your PhysX files are installed on your system. Make sure you go to the "Common" folder within the PhysX folder
3.) Copy all files
4.) Paste all files from the PhysX Common folder into Batman: AA folder where the game executable is located which is here C:\Program Files (x86)\Steam\steamapps\common\Batman Arkham Asylum GOTY\Binaries
Note
The game launched flawlessly and played flawlessly with the beautiful physx effects we all get to enjoy on the PC version :) I only tested it for a few minutes because I wanted to test this solution with other games that utilize an older version of PhysX like GRAW 2 and Cryostasis, both of which I've been waiting to play forever because of bugs with PhysX and hardware limitations I had. Both GRAW 2 and Cryostasis would not work properly if I did not complete this PhysX fix. Now they work better than ever.
Then you already have the newest version installed, but that doesn't mean it's working correctly.
Have you tried removing/reinstalling it?
This just means physx isnt't installed correctly. Removing/reinstalling it fixes the problem and prevents wasting disk space by needing to leave copies of the DLL's all over the place.