The flight instructor in the multi-engine airplane reported that the pilot under instruction was wearing a view limiting device during a simulated instrument approach in visual flight rules conditions. The instructor placed the left engine fuel selector in the off position to simulate an engine out, and the pilot under instruction initiated the left engine failure procedure placing the engine and propeller levers in a simulated feathered zero thrust configuration. The instructor became distracted by traffic and failed to place the left engine fuel selector in the on position. With full flaps applied and the landing gear extended, about 250 feet AGL the instructor terminated the simulated instrument approach and instructed the pilot to land visually, however, the airspeed decreased below safe limits and he instructed the pilot to increase the airspeed. The pilot increased power on both engines, however, there was no increase in power on the left engine and the airplane rolled to the left about 45°. The instructor came on the controls and applied right aileron and right rudder, but the airplane touched down in a level attitude in a shallow lagoon on the left side of the runway. The airplane sustained substantial damage to the forward fuselage bulkheads. The pilot reported that there were no mechanical malfunctions or failures with the airplane that would have precluded normal operation.