I recently came across a patch on Blender.org that adds collision to hair dynamics.
This is a test using a standard MH export.
http://www.youtube.com/watch?v=X7nUKPGdCTU
For those that are interested, the patch is out of date and two hunks must be adapted and applied manually. I compiled this for Win32 in MSVC++ 2008 Express.
I encountered no problems running Blender with the patch, but particle hair is very sensative and Blender likes to crash on my system if I try to rush it.