If the above is possible then there's gonna come a point where you can generate little AI's to inhabit your sandbox world/game. Even if the "game" pauses when you're not playing and you still have total control, tt this point its gonna get very messy ethically if its not already.

For example how wrong would it be to create a village of AI's and then send a tidal wave to destroy it, or even a monster for them to fight. If you know they are genuine individual AIs then it would be fairly evil to create anything other than a Utopia for them.

At least if they were simulated entities controlled by a global systems you could create something like the Warhammer world without unleashing total horror on so many genuine entities.

And thats not even to mention the ethics behind personally attacking them or whatever, which you wouldn't think twice about doing in a game right now.