My first instructor used to yell at me for being 'heads down' all the time as I'd spent a long time fiddling with Flight Simulator before embarking on my PPL in 1999. I quickly learned to look outside and start using the horizon to keep things level. My obsession with the instruments was probably exacerbated by the huge 2D panels of the earlier FS versions which severely limited the outside view to the extent that you really just 'flew' the panel.
The latest incarnations of FS are much better in that the 3D 'virtual cockpits' give you much better spatial awareness and a more commanding view of the outside world. I know at least one EZY F/O who bought the PMDG 737NG add-on to get a head start come type rating time, and the level of immersion particularly with the likes of the Level D 767 and the PMDG 747-400 is quite amazing.