The key thing here is that JAR 1A, 1H, AC 120-45, -63 and FAR part 60 are technical documents, addressing the technical capabilities of Flight Training Devices. While Level D devices may be capable of zero flight time transition training, the final judgement is down to what courseware the FTO has had approved. If the courseware says that CAT1 is approved down to DH, then the FTO is wrong to assess pilots on landings. On the other hand, if CAT 1 approaches are approved to be taught all the way to landing, the FTO can carry on as before; they have the authority on their side.
In the helo world, this is a common problem. Many sims are level D certified but are not capable of zero flight time training. It all comes down to what training delivery the FTO has pursued during the certification process.
One further thought. Level D simulators are certified using 3 designated airports. The device is only guaranteed to perform flawlessly at these airports. Many simulators have other airports added, but there is no guarantee that the scene content, lights and runway textures are up to the same standard as the 3 airports used during certification. Needless to say, any loss of visual fidelity (in this case, runway texture particularly) will impact the pilot's ability to judge the flare.