Now, if you manage to construct scenario B in a homomorphic encryption system, then I'd have to admit to some real uncertainty.

I don't think that's different even if we threw away the private key before beginning the simulation. It's akin to sending spaceships beyond the observable edge of the universe or otherwise hiding parts of reality from ourselves. In fact, I think it may be beneficial to live in a homomorphically encrypted environment that is essentially immune to outside manipulation. It could be made to either work flawlessly or acquire near-maximum entropy at every time step with very high probability and with nearly as much measure in the "works flawlessly" region as a traditional simulation.