I teach at a lower level, but find that contextualising physics (or chemistry or biology for that matter) does work better for me. Students find it both easier and harder. Easier to relate to, but harder to apply. My perception is that teaching complex subjects is easier when devontextualised because of the added complexity of real life application. SO I teach in context but am aware in my standards of the extra complexity of application.
Don't know whether it is better or not, it is different... As Mark said, you must always go to "applied physics" but without forgetting "basic physcis" that enables you to summarize efficiently for engineering students. Moreover you must always "recall" them that the "black boxes" they are using have to be understood in deep to smartly control it . And finally, if they want to talk with people doing the black boxes or order it out off the shelf, they have to know what is inside and how it works, and so go back to basics, e.g. optics electromag, ...Therefore we need more time to teach them physics than allowed...
I think both courses General Physics and Applied Physics are necessary for engineering students: at the first level of study (first three semesters) General Physics and in the second level of studies ( two semesters of the third of fourth year) Applied Physics which should be oriented according to engineer diploma, for example a student of electrical or electronic engineering need Applied Electromagnetism,
I agree with Mark Gould, contextualize. My dissertation work was in contextualizing chemistry. The research literature indicates that context is especially important for female students.