Yeah, the diving is (in some countries and cultures) really bad. But so are the small, chippy fouls.
If you watch Uruguay (and, God knows, I wouldn't want to) you can see that they are diving in in their tackling and going through the man, if necessary. I dare say the Italians were doing just the same. A violent foul like the one at the end of the Uruguay-Costa Rica game which got the guy sent off or the one at the end of Croatia-Chile are really clear and obvious to anyone who knows the game. But the line here between dangerous, dirty play and mere "mistiming" is very hard to draw. The referee of the Uruguay-England game didn't even bother trying.
Say what you like about Goodell, but the NFL has a collective structure and they try to make the game as attractive as possible for sponsors, TV networks and fans (probably in that order). There isn't any similar structure for international soccer. FIFA is worse than useless. So refereeing standards and cultures vary wildly.
But not all of the rolling around is simulation. The players wear shin pads and those are pretty effective. But the rest of the foot is exposed (and the side and rear calf) and impact injuries there (as anyone who has played the game can tell you) are extremely painful. In contrast to football, where a player will go off, miss a play and then come back, the soccer players are out there on the field. Again, drawing the line is very difficult.
