Yeah I always thought the whole 'tech' thing was pretty silly. Does magic also interfere with looms? How about slings? Basket weaving? "Egads, my sharpened stick isn't stabby any more, there's too much magic in the area!"
The obvious reason why simple blacksmithing isn't causing magic to break down is because the game follows the common fantasy trope of "Sword & Sorcery". I mean, it is all literally in the title. After all, in all fantasy settings you can have an armour set, a sword and a bow coexist with magic. Technology starts to interfere with magic only when it gets too advanced (at least in theory. Obviously the gameplay may differ from that concept here and there).
No, a simulation tries to emulate a situation that has basis on reality
First of all - yes. Yes, because you can't realistically simulate something you have no data for. And making up data is going to be prone to errors (if only because the creator of said data can be inconsistent for various reasons), thus making the whole model faulty. So treating anything like that as an attempt at an accurate simulation is idiotic to begin with.
Secondly - Arcanum is not supposed to have "basis on reality". It is pure work of fiction. At best you could call it soft fiction (exploring certain concepts, as I said before), but given it is still a FANTASY fiction any claims for having "basis on reality" are flat out retarded.