The simulator is not affected by the target flags. Its configuration is set through the HEXAGON_SIM_ARGS environement variable. The format is
HEXAGON_SIM_ARGS="[cpu_version [other_flags]]"
Where [] means an optional value. The cpu_version is something like v66 or v68, the rest of the flags follow the flags to hexagon-sim (from the Hexagon toolchain). If you only want to set the architecture to v66, set HEXAGON_SIM_ARGS="v66".