I would like to create/start a simulator for the following microcontroller board: http://www.sparkfun.com/commerce/product_info.php?products_id=707#
The firmware is
It's extremely unlikely that a bug in your code could damage the physical circuitry. If that's possible, then it is either a bug in the board design or it should be very clearly documented.
If I may offer you a suggestion from many years of experience working with these devices: don't program them in assembly. You will go insane. Use C or BASIC or some higher-level language. Microchip produces a C compiler for most of their chips (dunno about this one), and other companies produce them as well.
If you insist on using an emulator, I'm pretty sure Microchip makes an emulator for nearly every one of their microcontrollers (at least one from each product line, which would probably be good enough). These emulators are not always cheap, and I'm unsure of their ability to accept complex external input.
If you still want to try writing your own, I think you'll find that emulating the PIC itself will be fairly straightforward -- the format of all the opcodes is well documented, as is the memory architecture, etc. It's going to be emulating the other devices on the board and the interconnections between them that will kill you. You might want to look into coding the interconnections between the components using a VHDL tool that will allow you to create custom simulations for the different components.