"When trading real money in a real market, predictions based on historical data go out the window." No they don't. Depends on the style of course but most arb or stat arb strategies are fully derived from historical data.

"Ever back-test a trading system that simulates a Market Maker letting low block go under the bid or dialing down the sensitivity of the bid vs. the ask" Could you express this more clearly? Your language is sloppy. Yes I've back tested lots of market making strategies - all far more complex in behavior than traditional market making.