VMLAB is one of well known free simulators that support AVR microcontrollers. You may get free version of VMLAB tools from amctools. The simulation is done not in real time as computer resources wouldn’t allow this, but all timings of processes viewed in virtual oscilloscope are tied to real world values.
VMLAB is a project workspace where special scripting language describes the initial conditionas and circuit showing to virtual simulator connections between hardware and microcontroller. Few pre-built examples you may find in folders C:\VMLAB\AVR_demo and C:\VMLAB\ WinAVRdemo (for default installation in C:\VMLAB\ folder).
VMLAB quite rich in its hardware support: Resistors, Grounded capacitors, Interactive switches / keys, LED diodes, Pulsed voltage source, Sine wave voltage source, Slider dependent voltage source (interactive), Non-ruturn-to-zero (NRZ) generator (interactive), Operational amplifier, Comparator, 2 inputs NAND gate, 8 bits D to A converter, RS232 based TTY (interactive), LCD module, I2C monitor (interactive), Interactive keypad 4x4 Multiprocess-dedicated: External Input, External Output. Actually you can do a wide range of simulations with your virtual embedded system before taking it to the real world. VMLAB also has a powerful scope feature where you can view voltages on pins or even some internal microcontroller register values like ACO, TIMOVF.