Exactly. We know whether a virtual item is worth $20 by whether someone is willing to pay $20 for it.
I'd suggest that to make the hole-digging analogy work, we'd need to assume that there are people willing to pay $20 for the privilege of seeing a hole dug and then refilled (or something similar). And if that's the case, then who's to say the digging and refilling didn't create $20 of value?
Value isn't the right word here. "Global utility" would be better, but how do you define that? Take heavy drugs for instance. They can have a high positive value but most definitions of utility would assign them a low negative one, I figure.
The relationships between actions are so complex that "global utility" is just as blurry, maybe the ones overdosing are mostly criminals; maybe the company that creates the chemical products for the distilling process of the heavy drugs is actually owned by some guy that is going to find the cure for cancer thanks to the funds earned from his chemical company. Or maybe experiencing reality is not better than your experience on drugs. Yeah, those are very controversial statements but is mostly because it falls under the field of psychology, sociology and philosophy, which arguably are even more blurry.
Well, the definition itself isn't blurry I'd say, since it's pretty much universal: the examples you cited should be encompassed as possibilities by the model. It's just hard to define because it involves the complexities and oddities of morality, happiness and the like -- our objective knowledge of those is so restricted and sparse that we're better off just "winging" judgements from our legacy of humanities study.
I'd suggest that to make the hole-digging analogy work, we'd need to assume that there are people willing to pay $20 for the privilege of seeing a hole dug and then refilled (or something similar). And if that's the case, then who's to say the digging and refilling didn't create $20 of value?