Timbuff: Well, it is perfectly legal. It's little known, but it's in there.
I agree with you about a FSDO questioning you if something bad happened down the road, but I think answering them (regarding an IPC) with "We did 12 approaches in 2 hours, holding patterns, VOR tracking and I failed every system and he flew fine" would be equal if not stronger than actually going up in a plane and being unable to fail gauges and/or systems, and being limited spacially and with time. When you're in actual, the chips are down, certainly. But I guess I feel if they've already had some hours of actual then the sim and all its possibilities serves an IPC better.
Regarding the high-perf. endorsement...It's pretty much about knowing systems (fuel injection, constant speed props, etc.) and reading the POH of the plane you'll fly than mindlessly buzzing around in a Bonanza that the school rents that the student will never fly again just so the school can make more $$. In that case, I direct the students to the sim where it's cheaper and we can focus more on systems and the increase of speed during approaches, patterns, etc. The sim is perfectly legal to do your high-performance endorsement on.