Others can correct me if I'm wrong, but I think the solution to the puzzle is straightforward: physicalism isn't the same as reductive materialism. Indeed, that's part of Dupré's complaint against Nagel: Nagel's view of materialism is narrow and outmoded. You might have a look at this section of the article on physicalism in the Stanford Encyclopedia of Philosophy, which distinguishes reductive and non-reductive varieties of physicalism.
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In a review for Thomas Nagel's Mind and Cosmos, John Dupré, takes issue with Nagel's assertion that reductive materialism is regarded as the only serious philosophical possibility within mainstream philosophy. According to Dupré, reductionism has been almost entirely rejected by philosophers engaged in the biological sciences. I've been a regular reader of the Askphilosophers.org website and from what I've learned here, physicalism is the widely accepted position. Even the Stanford encyclopedia says that physicalism is the "default" attitude among philosophers. Is there something I am missing, or is John Dupré correct? http://ndpr.nd.edu/news/35163-mind-and-cosmos-why-the-materialist-neo-darwinian-conception-of-nature-is-almost-certainly-false/