It does rather depend on what you are testing or required to test. We use simulators with excellent visuals and some with the limitations you describe. We also train the circling exercise mainly as an instrument procedure using map mode and lnav on the 737. The transition to visual flight particularly somewhere tricky like Salzburg can be interesting but usually works fine.
If this is the guy's only misjudgement it is tough to fail him on this alone, particularly if you dont let him try it again. If he is generally borderline then that is another matter. I agree about the importance of landing in the touchdown zone, but then again in the real world people do not land like they do in the simulator. However we have failed people for not being able to get into a position to land after several attempts usually due to finger trouble with the fmc. So the answer is it depends.