Simulators can "break" in the sense that support simulating various failure modes, including presumably sensor malfunctions. It's very possible that they stumbled on the exact conditions that led to the real world crashes, which would be even more damning.
Yeah absolutely but if you are running a simulation/test would you deliberately inject some random sensor failure if you are doing your tests for something else?
It is not clear what they were testing - perhaps they were indeed testing the MCAS system with sensor failures, but if so I probably wouldn't have expected such a surprised resction from them. It seemed like it was totally unexpected and unexplained, which is not a reaction I would expect if they were testing this.