Like most things, the answer is "depends." The Arduino (and ATMega it is based on) has a limited number of I/O. The good news is that it is relatively easy to expand this number, but at a cost. You can't address 100 bits of I/O as fast as you can address 1. Fortunately, Microcontrollers are much faster than humans are so in some applications this does not matter.
A better approach would be, design your cockpit and controls first. Don't design the controls around an Arduino. You aren't building an Arduino-based Flight Simulator. You are building a Flight Simulator which is controlled by a microprocessor. (Follow the difference?)
Now if after you have clearly defined what all of the controls look like, the data they require, and the data they produce then you can evaluate if the Arduino is a viable choice. You might even at that point go through another iteration to see "how could I use the Arduino."