Has anyone had any luck running two instances of the iPhone simulator to test network code between the two?
No but you can run the Simulator and the WiTap code on your phone. I've done that and it's pretty cool.
Just provision the WiTap code for your development provisioning profile and load it on the phone. Then, making sure the phone is on the same network wifi, you can run your development machine with the Simulator running WiTap, and the phone running WiTap.
Works like a charm.