Is it possible to simulate multi-touch mouse down events? I'm wondering if there's some application that allows you to simulate mouse-down events?

I looked at BetterTouchTool and it can bind to specific actions, but I can't do something like Hold Down a mouse button which simulates "3 fingers being pressed down, then moving the mouse sideways to activate switching between spaces, or moving the mouse up/down to simulate mission control/show desktop".
There kind of is. Your question says "simulate mouse-down events", that's what's being covered in my answer. I used an application back in 2010, and I'm pleasantly surprised it's still being updated, and supports Mountain Lion.

It's called Mac Auto Mouse Click, and it's pretty configurable. You can set it to click anywhere on the screen and remember the position, and execute a whole series of commands, including keystrokes. It's also fairly simple to use. Here's a screenshot:



It is however limited in that it can only perform simple mouse-clicks, here's the full list:


  
  Left Mouse Button Click.
  Right Mouse Button Click.
  Middle Mouse Button Click.
  Shift + Left Mouse Button Click.
  Shift + Right Mouse Button Click.
  Shift + Middle Mouse Button Click.
  Double Left Button Click
  Type Text Automatically, like a Mac Auto Typer.