I thought it was possible for iPad from Unity 1.7 but I can't build for the Simulator with Unity 3.
I'm getting a million errors and I've added the same files in all the build phases of both targets (device and simulator).
Yes, you can build for iOS Simulator with Unity 3.0.
You need to select appropriate "SDK Version" (Simulator 3.2/4.0 for building for simulator or iPhone OS 4.0 for building for device) in Player Settings and hit Build & Run.
Note: Every time you switch between device and simulator you should change "SDK Version" in "Player Settings". Changing "Device"<->"Simulator" only inside Xcode won't work.
Unity does not support builds for the Simulator targets. You must build for Device only.
They want you to use Unity Remote instead so you can still simulate correct input (swipes and multi-tap) which can only be accomplished on the real device.
Unity Remote is a nice idea, but has its own bugs and problems, but that's just the state of things.