But by doing so they could invoke the wrath of the grandparent simulation. Logic leads to an implicit understanding that all recursive simulations must be allowed.

Why would our creators want to avoid nested simulation?

The singularity would probably overheat the host computer.

Possibly. Our simulation might be run on hypercomputers whose performance isn't affected by that sort of complexity. Heat might not even exist in the host universe's physics.

System going down for maintenance now

It may have been down for maintenance for millennia since your comment, and just come back now, but none of us noticed!

Insert your favorite Matrix déjà vu reference here.

They probably already figured it out if they can build a simulation this huge.