I was working on a product that is a simulation of something I won’t mention at this point, and I suddenly realized it was running inside a simulation of a device in a game editor that was running inside a Virtual Machine (simulation of a computer).
And it was performing just fine!
I frequently develop for iOS devices, and 9 out of 10 test runs are made in a simulator. The simulators in XCode cover nearly all kinds of devices Apple makes from the iPod touch to the iPad.
Most of my BlackBerry testing is done in a simulator. I test things for Android devices using a simulator.
What we all really need is a smartphone that can run all of these simulators.