Indeed, I came up with this CL thought experiment on my own before reading Permutation City, but I recently read it, and that was the first time I'd seen this idea explored in fiction, and really the only time I've seen this idea explored in general. Of course the idea that existence may be mathematical has been around for a long time (Wheeler, and all the way back to Plato), but it's thinking about what that means for a mind in a purely mathematical world like a cellular automaton that clarifies the difference between existence and reality and the notion that simulation is irrelevant. Egan focuses on the later, Permutation City doesn't explicitly say anything about the former and it kind of implies that you need a reality before you have existence (hence the way they "bootstrap" their virtual reality in the book), whereas I would go further and say that "all already exists" and the subset of that existence that gives rise to minds has reality. Minds are a property of some forms of existence, reality is a property of minds.

Or to put it a bit differently, existence is the (infinite) set of the possible, but what makes a possible existence an actual reality are minds to perceive it. All the bits are already there, you need minds make "it" from "bit".