I like the idea of changing it to Tabletop Games because, as you said, no one is searching for "Physical Games" so it makes things harder to discover. If we switched to "Tabletop Games" what things do you think would be left out? Just Live Action Games or anything else? Maybe those categories are so small it makes sense for them to live in Misc with a tag.
From a pure like, google search usefulness standpoint changing the category to tabletop games is going to be the best change, yeah. I don't make LARPs or live action games. My understanding is they take up a small percentage of an already small market but have a massive overlap with tabletop communities.
I know a lot of folks also use "analog games" as an umbrella term for board game, card games, tabletop RPGs, and larps. I think the thing that makes larps look like a smaller community is that there aren't huge companies that folks are creating supplemental materials for, or well known systems being hacked by various folks. I think the content that is being created by larp communities would fit in really well here, and it would be awkward/unintuitive to not include it in the category.
I've never heard of "analog games" - it makes sense - as opposite to digital games - but it doesn't seem a popular term.
Boundaries are fuzzy but I'd argue that escape-the-room games and sports might be things that one could publish on Itch that may or may not be considered Live Action Games.