Davydenko controlled the match at the City of Arts and Sciences despite dropping the second set.
The 36th-ranked Russian rallied in the decisive set with a forehand winner for a break point and 2-1 lead. Davydenko saved a break point through a drop shot in the sixth game before breaking Simon for the fourth time in the match to secure a second victory in seven meetings against the 12th-ranked Simon.
Simon trails eighth-ranked American Mardy Fish by 720 points with only the Paris Masters to play before the season-ending tour finals in London. Only the top eight qualify for the Nov. 20-27 tournament in London.
Isner bounced back from a shaky first set to hit nine of his 19 aces in the second, but Pospisil outlasted the hard-serving American in the third-set tiebreaker.
Defending champion David Ferrer is seeded No. 1 in Valencia, and begins his defense on Tuesday against fellow Spanish player Fernando Verdasco. French players Jo-Wilfried Tsonga and Gael Monfils are also in first-round action at the Agora complex on Tuesday.