If you can appreciate reality as we know it to be like a 3D computer world, which is capable of housing something we call life, then is it much more of a stretch to think that complex life forms can exist in the digital world?; replicating, surviving, thinking, reacting, remembering, feeling.
Discussion
If you can entertain the notion of reality being a simulation, then you must be able to entertain any other unimaginable notion.
Thinking of our current reality as a simulation is perfectly understandable. All religions at their core state that this waking reality is an illusion. All matter is energy moving at different frequencies.
Thinking about this reality as a computer simulation is a result of the limitation of current human intellect. We can only seek to explain the complexity we are witnessing using the most complex technology we can comprehend.
Referring to our reality as a computer program is like indigenous people referring to planes as giant metal birds.
To answer your question; in our lifetime we will see computer programs automate many human behaviors, devistate the turing test, and push the boundaries of what constitues sentient life. I don't think these digital entities will have feelings. That requires a nervous system.