Andrew,
After calling HP Support they directed me to a procedure in the HP-SIM V7.5 users guide. That was the one step I missed. I had the SNMP Trap service running on the HP-SIM server and since I was using the Jasva SNMP Trap Service that HP provides, it needed to be turned off. If it is turned on that is whatr causes the error I was seeing in the log files. If it is on, it will ointercept the traps before the Java Trap service that performs the SNMPv3 processing gets the trap.
Once I turned the Microsoft Trap Service off and disbled it, shutdown and started up HP-SIM evernthing worked perfectly. It's always the little things that trip you up. Anyways, the problem is solved.
Phil