What would be the purpose of a simulation with so much pain and suffering. Where children get raped, flayed, abused, etc... And don't give me any of that matrix crap, that was only to make a flawed concept make just enough sense that you didn't fully think it through until the next bullet time scene. I'm certainly not on the outside paying for this. I have a degenerative bone disease that's caused me to have 6 major surgeries in 6 years. If this is a simulation, when I get out, I'm going to kill the son of a bitch that put me in here.
That question is answered by theodicy- the philosophical field of justifying God's dealings with the universe. I recommend C.S. Lewis's _The Problem of Pain_. The short version is that if you give people free will, then there is a risk that they will try to hurt each other; if you always intervene to ensure that they can't hurt each other, then their free will is worthless; and if they don't have free will, then what's the point of them living?
Now as I said, that's the short version, and in such drastically abbreviated form the argument has holes you could drive a humvee through. An alternate explanation is that the creators of the simulation simply don't care about us at all, and we and our problems have nothing to do with its purpose. One might also ask, if the creators do care about us after all, why didn't they just make everyone morally perfect so they wouldn't freely hurt each other? In which case me-with-my-theologian-hat would say "maybe a life of pain is the very process by which morally perfect people are created". But theodicy is a very large field which I cannot adequately summarize in this post, so if you want real answers, just start with that book.
I sometimes envisage the simulation as the random by-product of some other computation. That we exist in the noise, the margins of some extremely large (maybe "game-of-life"-like) computation. The runners of the computer computation don't know what is happening at our level, they just see the underlying binary representation and the eventual result. There can be a large stack of emergent patterns, from the bottom-most jumbling of zeros and ones to quarks and eventually atoms and molecules. Even if they are looking at molecular level they would have no idea that anything alive and conscious and suffering is in there. Just funny moving patterns! How could they recognize a completely alien ecology running at arbitrary speed?
The problem with applying that (very reasonable, in my opinion) argument to this discussion is that it invokes assumptions of benevolence, or even planning and/or intent.
Those things are largely irrelevant to the question of simulation. There should be no implicit assumption that a simulation must have any sort of "deity" behind it. Nothing with intent, purpose, planning, ethics, etc. It seems much more reasonable to me that such a simulation, if it is in fact the case, 1) arose "naturally", whatever that may mean, and 2) does not care about us. This universe, simulated or otherwise, does not care about humans. Why should we assume the proposed simulation does?
Well, the idea that the simulators care is the basis for the standard argument that we're probably in a simulation. After all, it's supposed to be posthumans running simulations of their evolutionary ancestors. I don't know why they would do that, but given that premise, why run simulations of your ancestors if you don't care about your ancestors?
Of course, that provides another answer to the problem of pain- that this is how it was the first time 'round, and they want the simulation to be accurate.
Is the simulation just of us though? Or is the simulation of a much larger portion of the observable universe? We naturally want to be important, but I don't see any particularly compelling reason to think that we are. I don't see any reason at all to assume that if we are in a simulation, it is being run by anything remotely resembling us (or used to resemble us), or indeed by anything at all.
Is that such a strange concept? The prevailing school of thought, if the universe is not a simulation, is that there is no mastermind behind it. Seems natural to me that we would assume the same about any universe simulator.
That made me thing of a tangent - could the incredible distances between stars and the relatively slow speed of light be intentional, a way of preventing the simulation from grinding to a halt if any of the intelligences ever learn how to travel in space?
Maybe there's not enough resources to completely model everything we see in the sky, so there needs to be some mechanism to throttle exploration.
It seems to me that's kind of the defining feature of a simulation. If there's no one behind it, if it just exists entirely on its own, then it is the natural universe, not a simulation. Even if it looks computationally-based, that's just The Unreasonable Effectiveness of Mathematics at work.
A simulation means "someone made it". They may not be masterminding details of our lives, or our civilization, or even our solar system if they only happen to care about something completely different from that and incomprehensible to us, but nevertheless calling it a simulation implies that a creator at least exists.
You are just pulling that concept from the traditional definition of "simulation", but there is no particular justification for doing so.
If we detect evidence of what the author of the paper is calling a "simulation" (that is, our universe is being simulated in a 'meta-universe'), then we know only one thing about the meta-universe: It can simulate ours. We don't know that it supports some sort of "life" of it's own, contains anything with "intent", or contains anything like that at all. We do not know that there are meta-men in the meta-universe.
Perhaps there better terminology for such implications than saying a 'meta universe is simulating our universe', but the fact that we are using that terminology in the meantime does not mean it is reasonable to make the assumptions about it that you are making. Just because we call our universe a "simulation" does not mean that there must therefore be meta-men.
(Also I do not understand the point you are trying to make about it being the "natural universe". If some sort of meta-man made a simulation that we live in, instead of the simulation arising through non-deliberate means in the meta-universe, is his meta-universe any less "natural"? Either way the meta-universe is "natural"; whether meta-men exist or not)
In a nutshell what I am saying is that we should not assume intent unless there is evidence for intent. Evidence for 'simulation' itself should not be misconstrued as evidence for intent; it would be evidence for nothing but 'simulation' itself.
Gods and simulators are very equal in my book. The key isn't that I don't believe in either (though it's true that I do not), it that both constructs (god and simulators) being completely absent from any interactions with the human life in any recognizable way, simply are irrelevant. Both are not falsifiable, nor are either provable. It would be akin to me wondering if dragons exist on a planet that orbits V12 of NCG 4203.
Though to be honest, I would give better odds that there are dragons on a planet orbiting V12 of NCG 4203 than either of the above existing.