I also was trying to get the SensorSimulator working and I think I finally got it working.
The above steps:
"...java -jar bin/sensorsimulator.jar
Next, install SensorSimulatorSettings on the emulator using the adb tool which comes with the SDK:
$ adb -s install bin/SensorSimulatorSettings.apk
...Finally, run the installed SensorSimulatorSettings app in the emulator and enter the IP address 10.0.2.2..."
are a good start, but I needed to do more.
You apparently need to then modify your application to use the SensorSimulator. You can go to http://code.google.com/p/openintents/wiki/SensorSimulator and scroll down to the "How to use the SensorSimulator in your application" section.
Even then I got some errors in compiling, so you might want to see this page: Vintage Thermometer component + SensorSimulator on the Android emulator - I had to remove the references to android.hardware.Sensor, SensorEvent, and SensorEventListener.
And then it was failing at the call to connectSimulator. Apparently, I needed to give my application permission to use the Internet in the manifest file.
After all that, I am able to use the SensorSimulator to virtually rotate my phone and I do get the corresponding sensor readings in my application.