[BoiledCabbage]

This is faulty reasoning. The game "The Sims" has sold over 200 million copies. If the average number of characters created per game is over 40 then there have been more sims characters than people in the world. Add in a few more games and there have been more game characters than people that have ever lived. And that's with computing being in its infancy not even 80 years old yet. Give 1000 years and its not even close.

Additionally your fidelity is backwards. Thre fact that the simulation is simpler than the real world means we can fit many more people/entities in it - because the computer doesn't have to simulate at full fidelity.