Yeah, you're in a rough situation. To answer your inquiries:
a) I would try to retake the exam before the beginning of January. Even with your project, I would suggest finding some extra time to squeeze in studying and retaking the GRE in early to mid December. If you're applying to top schools in your country (though I don't know which country you're in), you definitely want to boost up your verbal and writing scores. Don't get filtered out of the list of potential applicants. If you absolutely cannot retake the test until the beginning of January, I'm sure ETS has some sort of "rush delivery" of scores for an additional charge. But this will also prevent you from applying to the schools that have an earlier deadline than February 1st. So your best bet, in my opinion, would be to study and retake the GRE A.S.A.P. But this time around, you may want to read some of the books out there on boosting your verbal and writing score before doing so. Also keep in mind many schools will continue to admit applicants after the deadline has passed if there is room left over for more admits. Of course, you won't get top priority in this case, but you may still be accepted.
b) No, I wouldn't start applying to lower-ranking schools just because of your current scores. You will be in grad school for a considerable amount of time for which you will pay a considerable amount of money and your degree will carry that particular school's name for the rest of your life. Don't settle for a school that you really don't wish to go to. Have some lower-level schools as back-ups of course, but don't set yourself on going to them yet. As for which ones are decent, I can't answer that because I don't know where you are from or what area you are looking to apply.
Anyway, I hope this helps. It's silly that physics grad schools sometimes use the GRE general test as a filter for potential applicants. After all, the math section is totally unrelated to mathematical physics and the verbal section doesn't prove much other than you have a large vocabulary (with many words you'll never even come across in your graduate studies). Probably the most relevant is the writing section, since graduate students need to be decent writers/presenters. But yet, this is the way it is, and we all need to get through it. Don't get frustrated though; just try to boost your scores as much as possible and still apply (even if late) to all the schools you wish to attend. ^_^