Well I figured out how to cure my problem (the Cap Sim RMI was after all working correctly). What is needed is to go to the ADF tuner, find the Volume knob, then find the ring behind the volume knob, set that to ADF. This is on the ADF radios up on the overhead panel. Once you do that, then the captainsim RMI needles will point to ADF1, ADF2, VOR1, AND VOR2 quite correctly.

I know I should have done better to RFM, but the 3 Captain Sim 707 manuals are PDF files with no text at all. Only images of text, and therefore not easily searchable. So if you need any help, such as I did, well good luck with that.
The information on this issue I finally located on page 46 of the 707 Captain Flight Manual Part II.