Let's say that tomorrow you literally find out (beyond doubt) that you are one of these lifeforms that lives inside a simulation, along with everyone else in this world.

Would you kill yourself? Would you prefer to never have lived?

What if life were extremely boring unless you were being toyed with? I.e. what if being toyed with actually makes life more fun and worth living.

It seems to me that the criteria for whether it's ethical to create conscious life is not whether someone plays with it, but rather whether the created creature experiences extreme and/or very prolonged suffering.

Even then it's questionable how real and problematic those experiences are, depending on context.

Perhaps suffering is just a trick the mind plays on you to motivate you to achieve something (mental health problems notwithstanding). Perhaps suffering can be relative and/or the mind can adapt to it, depending on how the mind in question works.

Perhaps it can be more ethical to create life, even if it can only live inside a simulation.

Well, my issue is not with existence or life creation itself.

My issue is of free will and the lack thereof.

Do you think that you'd be happy without free will?

I'd rather free will. Even if the choice is to be toyed with, the fundamental has to be free will.

It's easy to think that people would gravitate toward free will.