I've always thought this part was, by far, the most likely. It would be unethical to create a simulation in which the simulated beings were sophisticated enough to be self-aware and capable of significant suffering. It's the same thing that's caused me to shift from "I don't believe in god" to "I believe there probably isn't a god". For example, infants have been raped in Africa due to the virgin cleansing myth, and every year thousands of people kill themselves due to unmanageable misery. Not to mention the way that so many people die of "natural" causes, e.g. drowning in their own phlegm only to be revived by hospital staff for another go-around.