Okay, I see that that's what you're saying. The assumption then (which seems reasonable but needs to be proven?) is that the simulated humans, given infinite resources, would either solve Oracle AI [edit: without accidentally creating uFAI first, I mean] or just learn how to do stuff like create universes themselves.

There is still the issue that a hypothetical human with access to infinite computing power would not want to create or observe hellworlds. We here in the real world don't care, but the hypothetical human would. So I don't think your specific idea for brute-force creating an Earth simulation would work, because no moral human would do it.