A 4 year old probably couldn't control the game and he would not really understand a thing. He would also not enjoy it and just go do something else. Take a look at what's in plain sight for 4 year olds on TV. Do they care? No, they want to watch Teletubbies.
If you don't limit it to 4 year olds, that argument is still flawed because you simply can't protect children from stupid uncaring parents by banning media. The parents would just get the next worse thing. If the child has internet access, the only limit would be it's own curiosity. Everyone is goatsed sooner or later, even in Harry Potter forums and AOL chatrooms.
And for those that complain of censorship...come on. How can you complain about something that is virtually non-existant? What if a company made a sex simulator starring 2 year old girls? Is that okay to put on store shelves? If the government says no, "ZOMG censorship!"
If it stars real girls, the makers have to be arrested for abusing children. If it stars virtual girls, it would be very sick but I would not see a big problem with it. Nobody is harmed by making it. Will it increase child abuse? I don't know and that is an undeniable risk. Some discussion and scientific investigation would be necessary. If it indeed leads to significantly increased crime rates (and is the main cause), that would justify a ban.
A game like this probably exists on the internet or in Japan already...