The CPU could run vim even if it needs to emulate an x86. The problem is going to be RAM, the C64 just doesn't have enough. Even early versions vi took up most of the available RAM in a PDP-11/70.
go to Preferences | Settings | Cartridges | RAM Expansion Module, enable it and select the file reufile.linux, and make sure to select the correct size (16MiB)
So this only works if one adds a f-ing 16MB RAM cartridge to the system?
This is not "Linux running on a C64". This is Linux running on a platform that marginally includes some C64.