Because if the nature of your reality is that physical embodiment is an illusion and that all which really matters is what's inside you, then gender conformity isn't an important issue at all.

For example, this was a saying from an early 'heretical' tradition of Christianity which claimed that we are in a non-physical copy of an original physical world as created by an intelligence the original humanity brought forth (quite simulation hypothesis-y):

Jesus saw some babies nursing. He said to his disciples, "These nursing babies are like those who enter the kingdom."

They said to him, "Then shall we enter the kingdom as babies?"

Jesus said to them, "When you make the two into one, and when you make the inner like the outer and the outer like the inner, and the upper like the lower, and when you make male and female into a single one, so that the male will not be male nor the female be female, when you make eyes in place of an eye, a hand in place of a hand, a foot in place of a foot, an image in place of an image, then you will enter."

The idea here was that this realm is the copy of an original that we don't enter in some transition but are literally born into at birth (a rather radically different notion of "born again"). But this would necessarily mean that we are only in the image of the past, but are not foundationally male or female at all, as it's a temporary embodiment recreating the past.

The tradition's key point was to understand the nature of reality and in so understanding to realize that there will be an afterlife, but very close behind that point was pushing the importance of self-knowledge and self-truth:

But if you do not know yourselves, then you live in poverty, and you are the poverty.

So while yes, the notion of reality being simulated is a very big idea objectively, the subjective implications of that being the case are certainly tied to personal identity and in shedding the constraints of physical embodiment on how we define that identity.