I think your model is very intuitive. In this post, I speculated along a similar vein, though my ideas were less developed and more based on analogies.

I feel convinced that our 'experience of reality' is really the experience of a simulation of reality. (You write, "We live in our model and have absolutely, positively no direct knowledge of anything else – none ever."). This seems to be how I experience reality, but you provide a compelling reason for why:

It takes a fraction of a second to form the conscious experience of an event. But we do not live our lives a fraction of a second late.

We live in simulated moments. We perceive a red object for only a fraction of a second as we scan a room. If we notice the red object, however, we will dwell on this red object for longer than a fraction of a second, perhaps while dwelling on other things simultaneously. What we are dwelling on is not the fractional-second perception of the object itself, but a simulation representation of the object inspired by the fractional perception.

Perhaps the red object is simulated as resting on a table within a room, these contexts are simulated only if we are also aware of them. Being aware of something means we are simulating it. I use the analogy simulation, you use the analogy consciousness edit. Do you think these are analogies for the same thing?

I have side-stepped the 'hard question' of how and why red is experienced as red.

There are many questions one can ask about the experience of red, and I don't understand all of them. However, when I ask myself why 'red' seems to have an independent feeling (like a Platonic existence of some sort), I am satisfied with this explanation: my experience of red isn't the red object itself, and isn't even the perception of the red object (e.g., looking at a photo of something red in my mind's eye), it's the way my brain program simulates red when I dwell on the property red. That is, the qualia RED is red-in-the-simulation. It is certainly distinct from direct perception; it can be evoked independently of a red object but is often inspired by one. It feels more real, more proximate and more red than the immediate experience of looking at a red object.

If I have some time later, I'll add a comment about my experience of feeling like I developed new qualia experiences on Second Life, precisely because I didn't have the correct graphics card and couldn't actually see anything on the screen.