I'm glad you asked the two questions @grandiose. I think this is where English becomes really odd. It's my understanding (mistaken or not) that English evolved as a trading language, which means it works very well to assign a value to a discrete thing compared to another discrete thing. Whether this discrete nature is an accurate representation of the actual thing in question is immaterial. It's the perceived value that can be traded.
So where does that enter in to this discussion? Well, we're discussing 'spirit'. Spirit, in English, is perceived as a discrete object that may or may not exist within the body and may or may not be connected to other energies in the universe.
The alternative, of course, is to perceive spirit as a descriptor of the processes (both internal and external) that make up you. That means, when you typed this comment, you were humaning. You were grandioseinterlopering. But now, for all I know, you might be wolfing, or oaking or any number of processes distinct from what folks in modern civilization would call "you".
A better and simpler visual. What you call "spirit" is an eddy in the stream that is existence. It circles and circles for a finite amount of time before returning to the greater current.
So let's take question 1: 2 worms. Let's call him Eddy. Cut him in half, get 2 worms. They are both Eddy 2, and as time progresses, they will diverge even farther from what we used to call Eddy. To be proper, 2 spirits have been 'born', if you wish to picture it that way, with imprints reminiscent of their previous existence.
Some of what you're referring to -- rock into gravel for example -- I describe to my kids as old age. Rocks, as they age, get smaller, lose cohesion. Silica fused into, more likely a death and then birth into something new.
I believe it's best to describe spirits as repetitive patterns, which is why we can say sometimes a rock is a rock (i.e. no connection to us) and sometimes a rock is our oldest ancestor (we've gifted it with a fire lodge, asking that it returns the blessing to us in a sweat lodge). This puts animism squarely in the realm of observation and analysis, allowing us to grow and expand in our understanding of the world around us.
Question 2: So torture is the second point although great pain will do as well. I suppose it should creep me out that I actually have an answer. I've had some major conversations with a man who a long time ago was a "military interrogator". That's a euphemism for someone who occasionally uses torture. Part of his assignment was to take people from other units and try to break them. This was basically to prepare them in case they got caught by the enemy.
Anyway, he told me a story about the only person he -couldn't- break (he was -very- good at his job) and that was an Inuit fellow. This person was so centered, so at peace with what he'd done with his life, pain wasn't an issue. Yeah, it hurt, but it couldn't psychologically break him. It couldn't spiritually break him. All that was left was death.
There was a similar lesson taught at the sweat lodge I attend. The set up is that there are things that happen in this world that are negative for some but positive for others. For example, the lion gets to feed but the antelope dies in agony. Or the deer gets away but the cougar goes hungry. Negative things will happen in your life but you are -never- meant to carry them for long. That's why this world is sprinkled with all sorts of medicines to help people.
One of these medicines is death.
So that's my answer. You don't get a simulation but you can make your mind and spirit healthy enough to resist any pain. And if agony is too great, death is there, the final balm for those too wearied or too pained to continue.