Daily Story 16: Inverted Russian Dolls

Doctor Hastings sighed as he loosened his tie. "Well, gentlemen, the Reality Simulator has been axed."
Doctors Johnson and Meyers turned their attention from the lab rat cagematch and spent a moment thinking about the repercussions of this.
"I'm thinking about the repercussions of this." said doctor Meyers, who had been daydreaming a lot lately and didn't want his colleagues to think he was just thinking about Tina Fey again.
"Well, did you explain that it has shown the ability to accurately simulate the laws of physics at least to the limit of our ability to test them in the real world?" asked doctor Johnson, who actually was thinking about Tina Fey but was excellent at multitasking.
"I did. He said that the same was true of a regular laboratory, except that you know your results aren't being caused by a programming error."
"Well, we need to thoroughly test the simulator then." Meyers suggested, "Maybe we could do a simulation of it?"

Hastings felt a headache coming on.
"Simulating the simulator would be like putting a box inside another one that's the same size." Hastings saw the thought forming in Meyer's mind and moved to cut it off at the pass, "without crushing or folding the box. Stay with me here."
After a moment of thinking, possibly about the topic at hand, Meyers nodded.
"Oh, right, I see what you mean - it can't simulate something as complex as itself."
Johnson just shrugged, typing away at the terminal attached to the simulator.
"Well, we could make a smaller box. Like, make the simulation better than the real thing," he suggested, "and that way it can be smaller and faster."
"Don't be stupid. That would be like running an emulator of a system on that same system, and having it go faster than the original."
"Well, I'm done already and it's working."

"What?"
Johnson shrugged again. "I had to build it out of some exotic materials and tweak the setting for the laws of physics somewhat, but the simulation of the simulator is able to simulate more than the original."
Meyers nearly fell off of his stool in excitement. "Ooh! Ooh! Make it simulate itself!"
"Nice. Okay, there's two more simulators inside the simulation of the simulator."
Hastings' headache started inviting friends, and told them to bring a keg. "That doesn't make sense at all. We should have run out of memory instantly. Here, load something really big onto there. What's really really big?"
"Um... the AI is huge. Hold on. Okay, the AI is on there. Still no crash, let me tell the AI to make more of itself on the simulators - that should make us run out of room in no time."

Johnson typed for another minute, and then frowned.
"Is it working?"
"Nope. Also, I maybe should have worded that command more carefully, because now the copies are making copies, and they're each making two so it's exponential."
"Wow. So, how many AIs are there at this point?"
"One. They've melded into some sort of all-powerful overmind that's growing at a speed approaching infinity."
"Huh."
"Yeah."
All three looked distractedly around the room, trying to wait for the others to make a decision, but after a moment a message popped up in the simulator. "Now it says it's simulations are effectively real and it therefore should be classified as a god."

Hastings walked over to the whiteboard labeled 'FALSE GODS' and updated Johnson's count from four to five.
"Well Meyers, that puts me in the lead." Johnson said.
"Sorry, what? I was thinking about Tina Fey again."