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The problem is that the 2gb sparse disk format is no longer supported on ESXi 5.1 and beyond.
Theres the easy fix, and the hard fix.
Easy fix: before first boot, delete and recreate the SIM disk VMDK on IDE 1:1. Use this method if you are building a new sim from scratch.
Hard fix: re-enable 2gb sparse disk support, and convert the disk to a supported type with vmkfstools. Use this method if you have an existing sim you are trying to get working after upgrading your esxi install.