>In that case, running a simulation inside the simulation could be computationally possible, but it would probably incur in too much computing overhead. But this assumption is a bit flaky, of course, considering we are already assuming miraculous levels of computing power.

If we assume that the sub-simulation we create will use the same optimization scheme (detail-on-demand) as the simulation we live in, and be of roughly the same size, then creating just a single sub-simulation, running 24/7, will double the strain on the computer in base reality. Double the computation and double the memory. No matter how powerful your computer, "twice-as-much" is always a lot. If left to run indefinitely, the system would eventually crash.