You're reading too much into the terminology.
Take a step back. Look at what you're doing right now. You're reading a forum. The forum per se consists of posts, arranged on multiple pages. You can go from page to page. You can submit a post, and for a time can edit your own post. While on a page you see only a portion of the page--you can move your mouse to a scroll bar and scroll up and down, or you can push "page up" or "page down"; when you scroll up, the visible part of the page goes down, and when you scroll down, the visible part of the page goes up, as if you're looking at it with a window. Click on a page and you get to another topic.
The proof that this isn't all imagination is that you don't know what I post until you go through a bunch of rigamaroo in order to put my latest post on the visible portion of the screen, and read it. But whatever you read in that post is something that I put there--there's a causal relation between my typing this post and your reading it. Likewise, I have to go scroll over to put your post on the visible portion of my screen and read it to figure out what you reply--so even though I know what I type, I don't know what you type. So the thing isn't all in my head either. If it's "imaginary", then, I wonder who exactly is imagining it.
Now nobody anywhere believes that when I view your post, then scroll up above it, that somewhere beneath my computer screen your post is hanging around. Piggy might think we think that, but he's just lost.
What we do think is that there is an entire system, complete with physical causes, where every last detail--including the fact that you tend to see the same forum that I see--is implemented. This kind of thing needs a name. It's not an imaginary world, because no one person is imagining it, and the states are not being held in minds; they're being held on a series of machines. It is, instead, a large number of abstract states and relations.
It is indeed physical, because there's something real outside of your head that is holding onto these states, and the only place where real things exist is the physical world. But the forums are an abstract object. So we just call this the "world of the simulation".
The only problem here is that you don't like that term. Doesn't matter if you like it--it needs a label, and that's the one we're using. If you come up with a better label, that's fine, but I see nothing wrong with this label, so long as you believe us when we say over and over what we do and don't mean by it. And to ignore the thing altogether is a bigger mistake, because there is definitely something going on here worth discussing.
There are no special pleas here. We're just trying to tell you what's happening.
A "world of simulation" is simply a term we give to things like this forum that you're posting on right now. There are no properties we're attributing to this thing that this forum doesn't legitimately have.
An interesting point, the jref forum is a world of the simulation and there are conscious beings interacting through and with the simulation, you and I and the other posters.
Remember the post where I explained to Brainache that the simulator is merely an apparatus for projecting patterns onto a screen. Well here it is before your eyes.
The forum is a system of encoding messages which are being delivered to a simulator which simulates a board (in a coded form), which is then relayed to a set of simulators displaying the the board on our computer screens. We view the messages, mull it over and then type in another message and deliver it to the simulator and so on.
Now where are the conscious entities? They are the ones doing the mulling (thinking), if there were any conscious computers taking part or conscious simulated entities, they would have to interface with the simulators just like we do, from the outside.
The simulation, the world of the simulation is nothing more than a message board. Now if the message board included a virtual world rather like an online computer game, nothing would have changed, you would just have a stage or platform instead of a message board. And your avatar could move around on this virtual stage. The conscious entities are still on the outside as before writing and reading messages.
You could have a little virtual Piggy, a Pixy and a Punshhh walking around on the stage talking and interacting. Again it is only a messaging devise and the conscious entities are all on the outside.
Say some one built a conscious computer and bolted it on the side of the simulator at the Jref headquaters and it interacted on this stage. It would still be outside writing and reading messages. The same with software entities.
There is no inside the simulation for the conscious computer to be put (live), the stage only exists on the screens of the computers. The actual simulated board is an encoded set of instructions which is emailed to our computers, not a world.
This whole discussion of the world of the simulation is a diversion from the topic of AI. For the AI would be separate entities from any simulation in which they operated.
Likewise, this whole discussion of AI, interesting as it is, is a diversion from the OP. For the only examples of consciousness we know to be conscious are animals, not computers. Albeit animals which make use of intelligence, which has similarities to the artificial intelligence developed by these same animals in computers.