I am looking to visualize a combination of some aircraft being controlled through MATLAB using the XPlaneConnect plugin, and some being piloted through XPlane itself.

When I try to control aircraft using the plugin, the simulation is very "jerky" if I leave the physics simulation turned on. Meaning that the orientation is constantly shaking around. If I turn the physics off, the plugin-controlled aircraft runs completely smooth, but obviously, I can't fly any aircraft using XPlane itself.

Have you looked into pausing the physics sim for only 1 aircraft rather than all? I've looked through the code a little bit, but don't want to dig too deep before asking if it's something you've looked at already.