I believe there have been several successful attempts to model living organisms, reproduction and evolution in a virtual environment. In fact, if you look carefully at real life, it looks as if god used a similar technique himself.

Once you abandon vitalism, all life reduces itself to energy exchange processes on a matter substrate, i.e., chemistry. Extremely complex objects and behaviors evolve from very simple structures and very simple rules. As far as we know, all living things are composed of, at most, a few dozen elements. Many organisms make do with even fewer. Each element is very simple, and the ways they chemically combine with others are limited, even if they can form very complex compounds. Life exists in the narrow range of physical conditions which allow the formation of complex molecules.

The molecular combinations possible to atoms are infinite, even though their electron shells are constrained by quantum physics to a finite number of transitions, only a few of which can occur in the physical range where complex molecules are possible. Atoms form molecules, which form solutions, colloids, organelles, cells, tissues, organs, systems, organisms, which form life forms, which evolve through time and interact, which forms biospheres. At every step of the process, you have matter and energy interacting in time and space, and a handful of ordinary elements following the laws of physics and chemistry. At the base of it all is a handful of atoms sharing elections which jump from one quantum state to another in a finite number of allowable transitions. The complexity is hierarchical and recursive, essentially stochastic and chaotic, but at it's foundation, totally predictable. And it can be modeled in a virtual environment.

In fact, when you look at it this way, the universe itself looks like a model, a simulation, more than it does a machine. Substitute for a binary on-off the possible states of an electron about it's nucleus, jumping from level to level as energy is absorbed or emitted, the dance of life. Given enough time, "That which is not forbidden must be mandatory".

Adjust the parameters, plug in the numbers, and turn the crank. If it doesn't work out, tweak it a bit and run it again and see what you get...