I'll let Erik discuss the advantages of emulators.

OK Jon, here we go

Some of the benefits of simulation are:

Simulation is great when there is no hardware
absolutely, for simultaneous development you can not emulate, but if the HW developers are that slow, you have other problems :-)
or when you want to determine what the hardware should actually look like.
huh?

Simulation is very fast. It enables you to concentrate on the problem rather than on hooking stuff up.
OK it takes about 30 seconds to hook up the emulator and then you leave it hooked up till you are done and the project works.

A simulator works great for testing the logic in the program. Good simulators let you go beyond simple logic testing and allow you to test the entire application.
so does an emulator

There are some things that can't easily be tested WITHOUT simulation. For example, single bit failures are very difficult to test in hardware.
that I do not understand what can simulation catch that emulation can not?

With a simulator, you control time. When you stop the simulation, you stop everything, the program counter, the oscillator, interrupts -- everything. Nothing is running in the background.
So you do when emulation (except the oscillator)

OK, enough of the benefits. Here are a few things to look for in a simulator:

* Instruction set simulation. This should be obvious but I think this is one of the main points in simulation.
obviously always there in emulation

* Accurate Instruction Timing. This is important so that you know what you simulate is what you'll see on the actual device.
No emulator can do anything but accurate timing (I can see someone making something that does not but whatever he call it it is not an emulator).

* On-chip Peripheral Simulation. This allows you to setup on-chip peripherals and see what's happening. The timers, counters, A/D, D/A, PWM, CAN, I2C, UARTs, and so on can all be simulated.
Well, when you use your hardware, you do not have to worry about the I/O being emulated.

* Extensible simulation capabilities with either a script language or DLLs or something. This allows you to simulate stuff that is outside the chip. You'll need to have some way to inject signals (input) into the simulated device and some way to analyze signals (output) coming out of the device.
my point about "is the bug in the "script language or DLLs or something" or in your software.

Erik