My question is, is there any meaningful difference between a simulation and a video game? I can't discern any. So when somebody says we are in a simulation, what I hear that we are all NPCs in somebody's game.
Because, how could we not be?
To the Greeks, the world was the gods' playground. To (certain) Elizabethans, the world was a stage. To the Victorians, the universe was a clock. Every culture imagines the universe is whatever the hell they think they invented.
Are we NPCs?
Furthermore, the problems posed by the simulation argument are not significantly different than similar things in the past, e.g. Descartes’ demon.
I think Baudrillard’s work is a far more fruitful approach to this topic, as it addresses the media/entertainment nature of our “simulated” reality.
A simulation is also an abstraction, but a different kind. A flight simulation might simulate wind, but not a crew member getting drunk. It's there to abstract things towards a goal. Plays are often a reduction of a story - often unimportant characters and scenes get cut out. Games are a reduction to give the player maximum agency, a form of empathy, or practicing certain skills in a more controlled environment (e.g. Football Manager).
But the universe? What would it be abstracting?