If you want to create a full hardware-in-the-loop simulator, where a flight simulator program on your PC simulates the ArduPilot sensors and GPS while ArduPilot flies the plane in the simulator, you've got to have a pretty sophisticated bit of gear between ArduPilot and the PC. It needs to take the serial output from the flight sim and feed it to ArduPilot as GPS and XYZ sensor data, and then take the servo commands from ArduPilot and feed that back to the PC as joystick commands.
Jordi did it with some custom (and relatively expensive) gear here (using this ARM board), but it would be cool to have a cheap dedicated board that we could sell that would make it easy for people. We don't have time to develop this ourselves right now, but if someone wants to take a crack at it, the functional diagram is above. If you can design and test it, we'll manufacture it!
[Note: you can also design simpler simulators:
1) "Half-duplex": This is just the above diagram, but without the return loop of reading the servo outputs and sending them back to the flight simulator as joystick controls. In that case, you could put a "human in the loop" and just copy the rudder/aileron movements yourself, tilting the joystick to reproduce what the autopilot is doing. Not perfect, but better than nothing.
2) Navigation only: this is the easiest form and just requires the FTDI cable you already have. Just have the flight simulator send its GPS coordinates to the serial port, and ArduPilot will read them and think that's where it is. Once again, you can move the joystick to reproduce ArduPilot's steering and see how the system responds. No sensors or stabilization, but it's a good way to test navigation algorithms.]