Here are a few snippets from John Tierney's August 14, 2007 article in the New York Times, found at the link:
Dr. Bostrom assumes that technological advances could produce a computer with more processing power than all the brains in the world, and that advanced humans, or “posthumans,” could run “ancestor simulations” of their evolutionary history by creating virtual worlds inhabited by virtual people with fully developed virtual nervous systems. . . .
If civilization survived long enough to reach that stage, and if the posthumans were to run lots of simulations for research purposes or entertainment, then the number of virtual ancestors they created would be vastly greater than the number of real ancestors.
There would be no way for any of these ancestors to know for sure whether they were virtual or real, because the sights and feelings they’d experience would be indistinguishable. But since there would be so many more virtual ancestors, any individual could figure that the odds made it nearly certain that he or she was living in a virtual world.
The math and the logic are inexorable once you assume that lots of simulations are being run.
I think it is fun to consider the idea and the possibilities. What is hard to get past is the anger generated by even talking about it. UPDATE: I just went back to check the comments in the NYT science blog, and it is now a discussion about who thought of the idea first. Well, perhaps several people had their simulation programming written in such a way as to trigger this idea . . . .