Nejat,
Interesting retro project! May I suggest that you put a PNG of the schematic in your README? Not everyone has Eagle installed. I am intrigued that the EPROM is not driven directly by the C64, and would like to see more.
That Arduino looks to be based on the 328, which is well-supported by simavr. In my experience, the interfaces for integrating to external simulations are very good. Cycle-accurate timing may be more trouble: simavr uses the same instruction timing for all variants and I think there has been not much attention to transitions like waking from sleep. The code should be easy to modify to be more accurate and PRs are welcomed, though accepted slowly.
Giles