I did something similar years ago when I had to write the code for a system before the hardware interface panel was available. It ran on my computer of the day (BBC/Microbee/Sorcerer, I can't remember) with 2 or 3 low-level putchar/getchar functions. Then when the hardware was ready a quick rewrite of those funcs was done and viola it worked on the hardware.
This was a fairly complex UI so it was very useful to debug on a better machine without the compile/download cycle, and anyway I didn't have the hardware so there was no choice.
For a simple display it wouldn't be worth the effort I think but to debug something more complex it could be very useful.
I have seen LCD emulators that run somewhere, maybe with AVR Studio or something, I can't remember where.
I suppose the question may be, how many people are writing complex LCD display code? Is there enough to make the effort worth it?
Rob