There are significant downsides. You can argue that the upside is still worth it, but you can't dismiss the downsides as "completely arbitrary".
Also the simulator is basically an x86 version of iOS, look inside for yourself and see. Someone correct me here but I don't see why it would be impossible to for apple to ship a simulator for Windows, n.b. how MS has shipped the Linux ABI translation.
A port of the simulator would be possible but it'd be a good deal heavier than its OS X counterpart since it'd be running the entire OS instead of just the topmost layer.
The question is not whether "the simulator is basically an x86 iOS". The point is that requiring macOS to build iOS apps is not an arbitrary restriction — it's a tradeoff. You can argue for or against Apple's decision, but you can't argue that it's an arbitrary restriction on Apple's part.