<i>Hardware-in-the-loop (HIL) simulation</i> is rapidly evolving from a control prototyping tool to a system modeling, simulation, and synthesis paradigm synergistically combining many advantages of both physical and virtual prototyping. This paper provides a brief overview of the key enablers and numerous applications of HIL simulation, focusing on its metamorphosis from a control validation tool into a system development paradigm. It then describes a state-of-the art <i>engine-in-the-loop (EIL) simulation</i> facility that highlights the use of HIL simulation for the system-level experimental evaluation of powertrain interactions and development of strategies for clean and efficient propulsion. The facility comprises a real diesel engine coupled to accurate real-time driver, driveline, and vehicle models through a highly responsive dynamometer. This enables the verification of both performance and fuel economy predictions of different conventional and hybrid powertrains. Furthermore, the facility can both replicate the highly dynamic interactions occurring within a real powertrain and measure their influence on transient emissions and visual signature through state-of-the-art instruments. The viability of this facility for integrated powertrain system development is demonstrated through a case study exploring the development of advanced High Mobility Multipurpose Wheeled Vehicle (HMMWV) powertrains.