ON 20040510@6:53:13 AM at page:
http://www.piclist.com/techref/microchip/delay/sim.htm#38117.2869560185
Scott  Lee[SL-complete_lee-QA9] Says

I see _WDT_ON in the config but there are no clrwdt instructions so I'm sure that is a problem when you try to use the 2 second delay on real HW.<BR>
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As for MPLAB simulation, yes it seems to pause the execution after some short (in human terms) period of execution.  In my experience it isn't reseting the device or anything -- it's like it just decides to insert a break point.