I'm very glad to have had the opportunity to read this draft of your chapter. Certainly the argument is decisive and insightful. I'll save the bulk of my praises for the warm review, soon forthcoming I hope. For now, I'll politely aim low my critical machine-gun, with all necessary apologies -- I figure straight frank criticism will be of the most help.
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==Theory==
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A theoretical introduction to simulationism might want to emphasize what's interesting about it, and get a bit more in detail about the intriguing problems. E.g.: light- (or more generally, sense)-transmission; liquids; states and state-actuation (broken, colored, burned); NPC AI behavior.
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More generally, I think the more interesting material can be explained in such a way that you excite the attention of both novice and expert -- early and often, throughout this text. In this essay, in this context, I do not think you are quite so compelled to gradually build from the basics without introducing complexities early, as you are when writing a manual for example.
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A point on theory or terminology: it might be useful to introduce the concept of "default behavior", and perhaps explain simulationism as working on the level of "default behavior", as opposed to "declarative" (or what one might call "case-specific") behavior.
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It is not until the fifth section, "Design vs. Implementation," that the reader understands why case-specific behavior is here called "declarative" (because simulationism is algorithmic). Perhaps a sentence on this distinction is worthwhile in the introduction, if only to settle the terminology.
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A quibble: Certainly, simulationist or general-case behavior governs groups of objects, while case-specific or "declarative" behavior governs only the individual object for which the rule or behavior is declared. This implies that simulationist rules are more economical (just as first-order logic is more economical than predicative logic), but this does not really imply that the rules in a simulation are small in number; my experience writing simulations is quite the contrary. One upshot: I'm not entirely comfortable with the claim (two sections below) that Chess is not purely simulationist.
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A Typical Simulation
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paragraph1 typo: "the the"
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Any explanation of basic containment simulation is going to be a bit dry, and should be explained as economically as possible. (I'd cut or distill most of the second paragraph.) Although this section is interested in "a typical simulation," and certainly the containment/object-manipulation is *the* example, this is also an opportunity to address complex room spaces, such as we have in _Shade_ or ConSpace (a Tads-3 extension) -- a closing paragraph on this would add a lot of interest to the section.
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While we're talking about containment, MultiLoc objects and inter-room sense passing is also quite interesting. (You understand this from Tads-3 I'm sure).
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Simulations in Gaming
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Any enumeration of the rules of Tetris is going to be a bit tedious.
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The most interesting concept introduced in this section is "emergent behavior." (Indeed, it's worth suggesting that this is why the titular concept is called "simulation" in the first place.) If Tetris doesn't have any noteworthy emergent behavior, the example might be dropped entirely. Magic the Gathering might also be dropped, unless there's something specifically interesting to say about it. The two interesting examples of Doom and Chess are entirely sufficient; more is perhaps less.
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On the other hand, more could be said about "fully declarative" games (e.g., Choose Your Own Adventure, HTML/Hypertexts), if only to provide a backfoil for our better understanding of "simulationism".
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A quibble: by your analysis, crosswords are not so much an "extreme" case (of which? declarative or simulation?) as they are a "debatable" case. (I like the debate here, especially its deconstuctionist potential, but is it useful to the argument?)
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Computers Meet the Real World
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paragraph1: The first sentence is difficult to understand. The large parenthetical remark, if necessary, needs more elaboration; but it seems unnecessary to the larger argument. The final sentence is quite puzzling.
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paragraph2: I'd begin with the analysis of modeling American Football in AI: beginning with examples is good, and it seems good here. Perhaps close with some modification of the currently-first sentence. Still, it's unclear how this leads into the next point.
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Before the main argument of paragraph3, it would be useful to clarify something like the following: "Simulationism could be understood to imply 'simulation of the real world' -- and indeed we have seen that simulation is a major basis of our game-world. But as we have also seen, simulationism is primarily a technique for centralizing the rules governing the behavior of similar objects. The 'real'-ness of any given simulationism, and specifically its desirability and usefulness in a game, can easily be overestimated."
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paragraph4 is very strong. The logic, argument, and energy of this entire section should be singularly geared towards these points. In fact, perhaps a slightly modified version of this paragraph could go first in the section, with the rest of the section developing these excellent points.
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In the first paragraph of the next section, you re-introduce the notion of simulationism producing a sense of "the game feels real." This needs to be squared with the current section's caveats on realism.
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Design vs. Implementation
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paragraph1: "predictable consequences" has not yet been thematized, so some definition or explanation of this concept is warranted.
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paragraph3: I wouldn't mention the competition in your commentary for "Fit For a Queen," unless there's something about the competition that's relevant to the argument. If there is, it's lost on the reader unless you explain the relevance. Also, it's unclear how the weights puzzle is directed at a "non-simulationist design." The main problem: the logic of the paragraph does not emerge naturally upon the first reading. You appear to be making an very neat, excellent and sophisticated analysis: explaining one game as simulationist-designed, but declarative-implemented, and another game as simulationist-implemented, but declarative-designed. Particularly because this is a sophisticated argument, this logic of the paragraph might be signaled in the introduction of this paragraph's analysis.
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==CRAFT==
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This is the first major division (indicated by "==" on each side of the heading) since the very opening section, Theory. (There's very shortly the final large division ("Fifty Simulations").) This relatively small "Craft" division is tightly squeezed between them. Perhaps you might reorganize this division scheme into theory and examples (more on this below). But if we need a small division on craft, some transition is probably useful here, to introduce the new section: "In the preceeding discussion we have focused on concepts of simulationism [summarize, etc.]. Now we turn more towards the art or craft of simulationism, focusing on the handling of text, the beginning and end of all IF."
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Text Synthesis
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paragraph3: I would omit the specific v-space correction of "You see nothing under you," and instead address the more general problem of appropriate pronoun substution.
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Parsing
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This section is short; you might consider joining this section to the previous: Text Synthesis and Parsing. Or, if this is really tangential to your larger discussion, you might eliminate the section. Or, you might take a more basic approach to these issues, and explain the problems more elaborately.
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paragraph1 typo: there is a bad ')' in the middle of the first parenthesis.
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Realism and Abstraction
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This text might be best located in the "Computers Meet the Real World" section.
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==Fifty Simulations==
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I don't think this closing division best serves the essay. This division does good work in categorizing simulationist projects, and it's great to enumerate them, although this is not necessarily a good idea in this essay. I strongly recommend you incorporate the more interesting commentary into the preceeding sections, and if you want to discuss the remainder, rename the section something like "Further Simulations of Interest" or something like.
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It would not necessarily be difficult to incorporate most of this material into the essay proper. For example, the "baseline simulations" are explained in the second section; there's no need to reiterate. "Physical Properties" could be worked into more prosaic section, probably placed third. I'd discuss in preceeding sections the more general problem of simulating a physics. You could make a really cool example of emerging a Gallelian thermometer from a sufficiently sophisticated liquid/density/temperature simulation. Of course the commentary in this division is very intelligent and useful, but I recommend you move what you can up to the essay proper, and leave the rest as said.
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I really don't think this kind of commented list should be appended to the end of this essay. This division reads like "notes on things I should incorporate into the essay."