Hi Marc
Usually you should be able to use a direct connection and thus spare the level shifters. If you look at the LCD specifications you should find that they work fine at 3V3 (as opposed to 5V) although with the timing slightly slower. The project was configured to work with a direct 3V3 connection timing.
The only nuisance is usually the contrast voltage. With a 5V display this is typically about 0.5..1V to give optimum contrast. When the supply is only 3V3 it then requires a negative voltage of about -0.5..-1V, otherwise nothing is visible. There may be some LCD types which are optimised for 3V3 (and there are some with on-board converters to specifically generate the slightly negative voltage). I would take a look at a simple charge pump (eg. MAXIM has some) to generate a low current negative supply - it is also quite easy to control this with a PWM output from the processor to then have an electronically controllable contrast setting (the PWM value can be saved as a parameter to FLASH).
My preference is to invest a small amount of circuitry in the contrast voltage rather than in a level shifter... If you go for level shifter make sure that it is not only in one direction. At least the busy bit of the LCD (D7) needs to be able to be read.
As for the problem with the LCD in the simulator, this is not normal. I have just configured the SP7 with time server and 4 x 20 LCD to be sure and it worked OK:
Question.. Are you using Vista? I have not yet used Vista myself but a collegue of mine had difficulties with VS 2005 and Vista. We have been working on a project with a graphical LCD (128 x 64 or similar) and have added a graphical LCD simulator (not yet in the uTasker releases). On every one elses PC it worked well but on his only half of the display was visible, as if all content was shifted. We haven't looked into this yet. I wonder whether there is an incompatibility with the interface and Vista??
Can you send me a screen shot by mail so that I can get an impression of the problem?
Regards
Mark