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The problem with the Matrix is even with made-up physics, they did a terrible job writing in humans as a power source into the plot. That's a fairly low bar and they failed.

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It is claimed that in the original script, humans were used as a computing resource instead of an energy resource, but the idea was scrapped because it was too complicated to understand. A bit like lovemenot next to here indicates.

Discussion: http://scifi.stackexchange.com/questions/19817/was-executive...

I've always thought this too but I haven't come up with a better plot device

Me too. I always thought it would have been better if humans' processing cycles (thoughts) were utilised to supplement, validate and expand the Matrix. A sort of automatic, involuntary, unaware Mechanical Turk.

I think it's a better and more terrifying plot if you watch it as a Kafka-esque dystopia where people are imprisoned by the machines for inscrutable reasons that no-one truly knows. Morpheus's power supply theory is then just a necessary rationalization and a part of the mythology that allows the resistance to continue, while being fundamentally incorrect.

Thermodynamic impossibility is a relatively minor obstacle for a true believer.

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