Can we accurately simulate a smaller universe in this universe? If I understand correctly, according to this paper the answer is "no". Except how do we determine the simulation is inaccurate, without either knowing what is accurate (and thus having a correct simulation), or being unable to distinguish the inaccuracy from randomness (the simulation already won't perfectly predict a small part of the real universe due to such randomness, so you can't point to a discrepancy)? What does it mean for a simulation to be “inaccurate”?
Also, you don't need to simulate the entire universe to effectively simulate it for one person, e.g. put them in a VR world. From that person's perspective, both scenarios are the same.